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Exchange rate pass through, macro fundamentals and regime choice in Latin America

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  • Ghosh, Amit
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    Abstract

    The impact of changes in exchange rate on inflation is an issue of extreme importance for nations with a history of high inflation. While there have been significant studies on industrial and advanced economies, little analysis has been conducted on smaller economies that are open to trade and financial relationships. This paper estimates exchange rate pass-through (ERPT) into CPI and import prices from 1970 to 2010 for nine Latin American nations. ERPT is further estimated for each decade documenting declining pass-through after the turn of the millennium. The paper also examines the impact of macro fundamentals on ERPT, and finds monetary policy stability, inflation rate and trade openness to have a positive impact on pass-through. Finally, de facto exchange rate flexibility indices are constructed and ERPT rates are found to negatively affect them.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0164070412000912
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Macroeconomics.

    Volume (Year): 35 (2013)
    Issue (Month): C ()
    Pages: 163-171

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    Handle: RePEc:eee:jmacro:v:35:y:2013:i:c:p:163-171

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    Web page: http://www.elsevier.com/locate/inca/622617

    Related research

    Keywords: Inflation; Exchange rate pass-through; Monetary policy stability; de facto exchange rate flexibility;

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    Cited by:
    1. Pierre-Richard Agénor & Luiz A. Pereira da Silva, 2013. "Macroprudential Regulation and the Monetary Transmission Mechanism," Centre for Growth and Business Cycle Research Discussion Paper Series 185, Economics, The Univeristy of Manchester.

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