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Revisiting the decline in the exchange rate pass-through: further evidence from developing countries

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  • Jamel JOUINI

    ()
    (F.S.E.G.N. and L.E.G.I., Université 7 Novembre de Carthage, Tunisie and GREQAM, Université de la Méditerranée, France)

  • Karim BARHOUMI

    ()
    (GREQAM, Université de la Méditerranée, France and Economics Department of Macquarie University, Australia)

Abstract

In this paper, we revisit the Taylor (2000) proposition for some developing countries in order to examine the decline in their pass-through coefficients, and to find possible explanations for this. Our work is motivated by the fact that during the 1990s, some developing countries shifted their monetary policy in order to reduce the inflation. We adopt a methodology based on structural break and cointegration approaches proposed by Bai and Perron (1998), and Gregory and Hansen (1996), respectively. These techniques allow identifying the inflation decline and adopting a long-run approach which is ignored in some empirical works related to the pass-through.

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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 3 (2008)
Issue (Month): 20 ()
Pages: 1-10

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Handle: RePEc:ebl:ecbull:eb-07c20152

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Keywords: cointegration tests;

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  1. Donald W.K. Andrews & Werner Ploberger, 1992. "Optimal Tests When a Nuisance Parameter Is Present Only Under the Alternative," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1015, Cowles Foundation for Research in Economics, Yale University.
  2. Gregory, Allan W. & Hansen, Bruce E., 1996. "Residual-based tests for cointegration in models with regime shifts," Journal of Econometrics, Elsevier, Elsevier, vol. 70(1), pages 99-126, January.
  3. barhoumi karim, 2004. "Exchange Rate Pass-Through Into Import Prices In Developing Countries: An Empirical Investigation," Economics Bulletin, AccessEcon, vol. 28(10), pages A0.
  4. Pinelopi Koujianou Goldberg & Michael M. Knetter, 1997. "Goods Prices and Exchange Rates: What Have We Learned?," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 35(3), pages 1243-1272, September.
  5. Jeffrey Frankel & David Parsley & Shang-Jin Wei, 2012. "Slow Pass-through Around the World: A New Import for Developing Countries?," Open Economies Review, Springer, Springer, vol. 23(2), pages 213-251, April.
  6. Jouini, Jamel & Boutahar, Mohamed, 2005. "Evidence on structural changes in U.S. time series," Economic Modelling, Elsevier, Elsevier, vol. 22(3), pages 391-422, May.
  7. Donald W.K. Andrews, 1990. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 943, Cowles Foundation for Research in Economics, Yale University.
  8. repec:ebl:ecbull:v:3:y:2005:i:26:p:1-14 is not listed on IDEAS
  9. José Manuel Campa & Linda S. Goldberg, 2005. "Exchange Rate Pass-Through into Import Prices," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 679-690, November.
  10. Taylor, John B., 2000. "Low inflation, pass-through, and the pricing power of firms," European Economic Review, Elsevier, Elsevier, vol. 44(7), pages 1389-1408, June.
  11. Joseph E. Gagnon & Jane Ihrig, 2001. "Monetary policy and exchange rate pass-through," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 704, Board of Governors of the Federal Reserve System (U.S.).
  12. Peter Hooper & Catherine L. Mann, 1989. "Exchange Rate Pass-through in the 1980s: The Case of U.S. Imports of Manufactures," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(1), pages 297-337.
  13. Michael B. Devereux & James Yetman, 2001. "Predetermined Prices and the Persistent Effects of Money on Output," Working Papers, Bank of Canada 01-13, Bank of Canada.
  14. Perron, P. & Bai, J., 1995. "Estimating and Testing Linear Models with Multiple Structural Changes," Cahiers de recherche, Universite de Montreal, Departement de sciences economiques 9552, Universite de Montreal, Departement de sciences economiques.
  15. Barhoumi, Karim, 2006. "Differences in long run exchange rate pass-through into import prices in developing countries: An empirical investigation," Economic Modelling, Elsevier, Elsevier, vol. 23(6), pages 926-951, December.
  16. Peter C.B. Phillips, 1985. "Time Series Regression with a Unit Root," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 740R, Cowles Foundation for Research in Economics, Yale University, revised Feb 1986.
  17. Jose Manuel Campa & Linda S. Goldberg, 2002. "Exchange Rate Pass-Through into Import Prices: A Macro or Micro Phenomenon?," NBER Working Papers 8934, National Bureau of Economic Research, Inc.
  18. Betts, Caroline & Devereux, Michael B., 2000. "Exchange rate dynamics in a model of pricing-to-market," Journal of International Economics, Elsevier, Elsevier, vol. 50(1), pages 215-244, February.
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Cited by:
  1. María Lorena Marí Del Cristo & Marta Gómez-Puig, 2013. "Pass-through in dollarized countries: should Ecuador abandon the US dollar?," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 45(31), pages 4395-4411, November.
  2. Barhoumi, Karim, 2006. "Exchange Rate Pass-Through and Structural Macroeconomic Shocks in Developing Countries: An Empirical Investigation," MPRA Paper 6573, University Library of Munich, Germany, revised 13 Oct 2007.
  3. Luyinduladio, Menga, 2010. "Degré de répercussion du Taux de change sur l’Inflation en République Démocratique du Congo de 2002 à 2007
    [Pass-Through of Exchange rate to inflation in DRC 2002 to 2007]
    ," MPRA Paper 21970, University Library of Munich, Germany.

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