Inflation Responses to FX Demand and Supply Shocks under Exchange Rate Segmentation: Evidence from Angola

Mateus Maquiadi

No 2026/0421, Working Papers REM from ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa

Abstract: We identify FX demand and FX supply shocks using a Bayesian Structural VAR with sign restrictions and employ Local Projections to estimate their dynamic effects on inflation in Angola, comparing results obtained using the official and parallel exchange rates. In addition, State- Dependent Local Projections are used to assess whether the degree of exchange rate segmentation alters the intensity of exchange rate pass-through. The results show that FX demand shocks generate rapid, persistent, and statistically significant inflationary effects, whereas positive FX supply shocks produce weaker disinflationary effects. The findings further suggest that the parallel FX market plays an important role in price formation in some sectors of the economy and that exchange rate segmentation influences the transmission of exchange rate shocks to domestic prices.

Keywords: Exchange Rate Pass-Through; Inflation Dynamics; FX Demand and Supply Shocks; Exchange Rate Segmentation; Angola. (search for similar items in EconPapers)
JEL-codes: C32 E31 F31 (search for similar items in EconPapers)
Date: 2026-06
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