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Exchange Rate Pass-Through in Emerging Markets

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  • Michele Ca’ Zorzi
  • Elke Hahn
  • Marcelo Sánchez

Abstract

This paper examines the degree of Exchange Rate Pass-Through (ERPT) to prices in 12 emerging markets in Asia, Latin America and Central and Eastern Europe. The results, based on three alternative vector autoregressive models, partly overturn the conventional wisdom that ERPT into both import and consumer prices is always higher in ‘emerging’ than in ‘developed’ countries. For emerging markets with only one digit inflation (most notably the Asian countries), pass-through to import and consumer prices is found to be low and not very dissimilar from the levels of developed economies. The paper also finds robust evidence for a positive relationship between the degree of the ERPT and inflation, in line with Taylor’s hypothesis once two outlier countries—Argentina and Turkey— are excluded from the analysis. Finally, the presence of a positive link between import openness and ERPT, while plausible theoretically, finds only weak empirical support.

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Bibliographic Info

Article provided by IUP Publications in its journal The IUP Journal of Monetary Economics.

Volume (Year): V (2007)
Issue (Month): 4 (November)
Pages: 84-102

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Handle: RePEc:icf:icfjmo:v:05:y:2007:i:4:p:84-102

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  15. repec:rus:hseeco:122183 is not listed on IDEAS
  16. Hahn, Elke, 2003. "Pass-through of external shocks to euro area inflation," Working Paper Series 0243, European Central Bank.
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