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Transmission of Exchange Rate Shocks into Domestic Inflation: The Case of the Czech Republic

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Author Info
Oxana Babecká-Kucharčuková () (Czech National Bank)

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Abstract

This paper aims at estimating the exchange rate pass-through (ERPT) for the Czech Republic. The existing empirical literature does not come to a consensus about the degree of pass-through to Czech inflation. Since there is no unique approach regarding how to measure ERPT, the author uses 11 specifications, including some along the distribution chain in the spirit of McCarthy (2007). She tries to explore the properties of exchange rate shock transmission by comparing impulse responses. In addition, she tries to account for possible variation in time. Finally, she explores how the pass-through differs between tradable (3 sub-groups) and non-tradable goods. She finds that the speed of exchange rate shock trans-mission to all prices is quite high. However, in absolute terms, ERPT does not exceed 25–30 %.

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File URL: http://journal.fsv.cuni.cz/mag/article/show/id/1155
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Publisher Info
Article provided by Charles University Prague, Faculty of Social Sciences in its journal Finance a uver - Czech Journal of Economics and Finance.

Volume (Year): 59 (2009)
Issue (Month): 2 (June)
Pages: 137-152
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Handle: RePEc:fau:fauart:v:59:y:2009:i:2:p:137-152

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Related research
Keywords: exchange rate pass-through; inflation; VAR; VECM;

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Find related papers by JEL classification:
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
F31 - International Economics - - International Finance - - - Foreign Exchange

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  5. Balázs Égert, & László Halpern & Ronald MacDonald, 2005. "Equilibrium Exchange Rates in Transition Economies: Taking Stock of the Issues," William Davidson Institute Working Papers Series wp793, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
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  6. Jeannine Bailliu & Eiji Fujii, 2004. "Exchange Rate Pass-Through and the Inflation Environment in Industrialized Countries: An Empirical Investigation," Working Papers 04-21, Bank of Canada. [Downloadable!]
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  7. Michele Ca’ Zorzi & Elke Hahn & Marcelo Sánchez, 2007. "Exchange Rate Pass-Through in Emerging Markets," Icfai University Journal of Monetary Economics, Icfai Press, vol. 0(4), pages 84-102, November.
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  8. Campa, Jose Manuel & Gonzalez Minguez, Jose M., 2006. "Differences in exchange rate pass-through in the euro area," European Economic Review, Elsevier, vol. 50(1), pages 121-145, January. [Downloadable!] (restricted)
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  13. Coricelli, Fabrizio & Jazbec, Bostjan & Masten, Igor, 2006. "Exchange rate pass-through in EMU acceding countries: Empirical analysis and policy implications," Journal of Banking & Finance, Elsevier, vol. 30(5), pages 1375-1391, May. [Downloadable!] (restricted)
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  16. Menon, Jayant, 1995. " Exchange Rate Pass-Through," Journal of Economic Surveys, Blackwell Publishing, vol. 9(2), pages 197-231, June.
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  20. Korhonen, Iikka & Wachtel, Paul, 2006. "A note on exchange rate pass-through in CIS countries," Research in International Business and Finance, Elsevier, vol. 20(2), pages 215-226, June. [Downloadable!] (restricted)
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  21. Choudhri, Ehsan U. & Hakura, Dalia S., 2006. "Exchange rate pass-through to domestic prices: Does the inflationary environment matter?," Journal of International Money and Finance, Elsevier, vol. 25(4), pages 614-639, June. [Downloadable!] (restricted)
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  22. Balázs Égert & Ronald MacDonald, 2006. "Monetary Transmission Mechanism in Transition Economies: Surveying the Surveyable," MNB Working Papers 2006/5, Magyar Nemzeti Bank (The Central Bank of Hungary). [Downloadable!]
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