Asymmetric transmission of oil shocks and geopolitical risk to inflation in an energy-importing economy: multi-threshold evidence from Morocco

Abstract

This study examines the effects of oil price shocks and geopolitical risk on inflation in Morocco, an energy-importing economy operating under a managed-float exchange-rate regime. Using monthly data from June 2007 to December 2025, the analysis employs a multiple-threshold nonlinear ARDL model. Oil prices, geopolitical risk, and their interaction are decomposed into quintile-based regimes within a unified cointegration framework. The results reveal strong magnitude-dependent asymmetries. Oil price pass-through is insignificant in the lower and middle regimes and becomes marginally significant only in the upper regime when the policy rate I included (Q 5 : 0.025). Geopolitical risk reduces inflation at moderate stress levels (Q 3 : −0.617) but turns positive and insignificant in the upper regime (Q 5 : 0.024). The compound oil-geopolitical risk effect is non-monotonic and sub-additive. In the long run, it is significant in the upper regime without the policy rate (Q 5 : 0.038), while short-run effects become significant only when the policy rate is included, shifting from negative at moderate stress (Q 3 : −0.031) to positive at extreme stress (Q 5 : 0.026). Wald tests consistently confirm long-run asymmetry. Foreign exchange reserves are positively associated with inflation, with stronger coefficients under compound-stress conditions. Error-correction estimates imply half-lives of 2.4-6.7 months. Robustness checks, including sub-sample analysis and estimation using a quantile nonlinear ARDL (QNARDL) model, demonstrate that these transmission mechanisms have intensified in the post-COVID period. The results confirm the significance of both the oil-price and compound-shock channels. These findings highlight the necessity of energy diversification and a proactive monetary policy response to external shocks. For oil-importing economies, maintaining flexibility in the managed exchange rate constitutes an important policy instrument in the presence of compound external shocks.