IDEAS home Printed from https://ideas.repec.org/a/ijc/ijcjou/y2019q3a2.html
   My bibliography  Save this article

Exchange Rate Pass-Through: What Has Changed Since the Crisis?

Author

Listed:
  • Martina Jašová

    (Barnard College, Columbia University, United States)

  • Richhild Moessner

    (Bank for International Settlements, CESifo)

  • Elöd Takáts

    (Bank for International Settlements)

Abstract

We study how exchange rate pass-through to CPI inflation has changed since the global financial crisis. We have three main findings. First, exchange rate pass-through in emerging economies decreased after the financial crisis, while exchange rate pass-through in advanced economies has remained relatively low and stable over time. Second, we show that the declining pass-through in emerging markets is related to declining inflation. Third, we show that it is important to control for non-linearities when estimating exchange rate passthrough. These results hold for both short-run and long-run pass-through and remain robust to extensive changes in the specifications.

Suggested Citation

  • Martina Jašová & Richhild Moessner & Elöd Takáts, 2019. "Exchange Rate Pass-Through: What Has Changed Since the Crisis?," International Journal of Central Banking, International Journal of Central Banking, vol. 15(3), pages 27-58, September.
    • Handle: RePEc:ijc:ijcjou:y:2019:q:3:a:2
    as

    Download full text from publisher

    File URL: http://www.ijcb.org/journal/ijcb19q3a2.pdf
    Download Restriction: no
    File URL: http://www.ijcb.org/journal/ijcb19q3a2.htm
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Jeannine Bailliu & Eiji Fujii, 2004. "Exchange Rate Pass-Through and the Inflation Environment in Industrialized Countries: An Empirical Investigation," Staff Working Papers 04-21, Bank of Canada.
    2. Plantin, Guillaume & Shin, Hyun Song, 2018. "Exchange rates and monetary spillovers," Theoretical Economics, Econometric Society, vol. 13(2), May.
    3. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear of Floating," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(2), pages 379-408.
    4. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    5. Antonia Lopez-Villavicencio & Valérie Mignon, 2016. "Exchange rate pass-through in emerging countries: Do the inflation environment, monetary policy regime and institutional quality matter?," EconomiX Working Papers 2016-18, University of Paris Nanterre, EconomiX.
    6. Forbes, Kristin & Hjortsoe, Ida & Nenova, Tsvetelina, 2018. "The shocks matter: Improving our estimates of exchange rate pass-through," Journal of International Economics, Elsevier, vol. 114(C), pages 255-275.
    7. 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.
    8. Fernando Alvarez & Francesco Lippi & Juan Passadore, 2017. "Are State- and Time-Dependent Models Really Different?," NBER Macroeconomics Annual, University of Chicago Press, vol. 31(1), pages 379-457.
    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. José De Gregorio, 2016. "Large Depreciations: Recent Experience in Historical Perspective," Working Paper Series WP16-8, Peterson Institute for International Economics.
    11. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    12. Aleem, Abdul & Lahiani, Amine, 2014. "Monetary policy credibility and exchange rate pass-through: Some evidence from emerging countries," Economic Modelling, Elsevier, vol. 43(C), pages 21-29.
    13. Kohlscheen, Emanuel, 2010. "Emerging floaters: Pass-throughs and (some) new commodity currencies," Journal of International Money and Finance, Elsevier, vol. 29(8), pages 1580-1595, December.
    14. Dubravko Mihaljek & Marc Klau, 2008. "Exchange rate pass-through in emerging market economies: what has changed and why?," BIS Papers chapters, in: Bank for International Settlements (ed.), Transmission mechanisms for monetary policy in emerging market economies, volume 35, pages 103-130, Bank for International Settlements.
    15. Engel, Charles, 2002. "The Responsiveness of Consumer Prices to Exchange Rates: A Synthesis of Some New Open Economy Macro Models," Manchester School, University of Manchester, vol. 70(0), pages 1-15, Supplemen.
    16. Shambaugh, Jay, 2008. "A new look at pass-through," Journal of International Money and Finance, Elsevier, vol. 27(4), pages 560-591, June.
    17. Takhtamanova, Yelena F., 2010. "Understanding changes in exchange rate pass-through," Journal of Macroeconomics, Elsevier, vol. 32(4), pages 1118-1130, December.
    18. Charles Engel, 2002. "The Responsiveness of Consumer Prices to Exchange Rates: A Synthesis Of Some New Open Economy Macro Models," Manchester School, University of Manchester, vol. 70(S1), pages 1-15.
    19. Jeannine Bailliu & Hafedh Bouakez, 2004. "Exchange Rate Pass-Through in Industrialized Countries," Bank of Canada Review, Bank of Canada, vol. 2004(Spring), pages 19-28.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ms. Janet Gale Stotsky & Mr. Manuk Ghazanchyan & Mr. Olumuyiwa S Adedeji & Mr. Nils O Maehle, 2012. "The Relationship Between the Foreign Exchange Regime and Macroeconomic Performance in Eastern Africa," IMF Working Papers 2012/148, International Monetary Fund.
    2. Siklos, Pierre L., 2018. "Boom-and-bust cycles in emerging markets: How important is the exchange rate?," Journal of Macroeconomics, Elsevier, vol. 56(C), pages 172-187.
    3. Anderl, Christina & Caporale, Guglielmo Maria, 2023. "Nonlinearities in the exchange rate pass-through: The role of inflation expectations," International Economics, Elsevier, vol. 173(C), pages 86-101.
    4. Jimborean, Ramona, 2013. "The exchange rate pass-through in the new EU member states," Economic Systems, Elsevier, vol. 37(2), pages 302-329.
    5. Ozkan, Ibrahim & Erden, Lutfi, 2015. "Time-varying nature and macroeconomic determinants of exchange rate pass-through," International Review of Economics & Finance, Elsevier, vol. 38(C), pages 56-66.
    6. Baharumshah, Ahmad Zubaidi & Soon, Siew-Voon & Wohar, Mark E., 2017. "Markov-switching analysis of exchange rate pass-through: Perspective from Asian countries," International Review of Economics & Finance, Elsevier, vol. 51(C), pages 245-257.
    7. repec:jns:jbstat:v:227:y:2007:i:3:p:295-329 is not listed on IDEAS
    8. Flamini, Alessandro, 2007. "Inflation targeting and exchange rate pass-through," Journal of International Money and Finance, Elsevier, vol. 26(7), pages 1113-1150, November.
    9. Eliphas Ndou, 2022. "The exchange rate passthrough to consumer price inflation in South Africa: has the inflation target band induced a structural change in the size of passthrough?," SN Business & Economics, Springer, vol. 2(6), pages 1-32, June.
    10. Ben Cheikh, Nidhaleddine & Ben Zaied, Younes, 2020. "Revisiting the pass-through of exchange rate in the transition economies: New evidence from new EU member states," Journal of International Money and Finance, Elsevier, vol. 100(C).
    11. Tunç, Cengiz, 2017. "A Survey on Exchange Rate Pass through in Emerging Markets," Bulletin of Economic Theory and Analysis, BETA Journals, vol. 2(3), pages 205-233, July-Sept.
    12. Devereux, Michael B. & Yetman, James, 2010. "Price adjustment and exchange rate pass-through," Journal of International Money and Finance, Elsevier, vol. 29(1), pages 181-200, February.
    13. Comunale, Mariarosaria & Simola, Heli, 2018. "The pass-through to consumer prices in CIS economies: The role of exchange rates, commodities and other common factors," Research in International Business and Finance, Elsevier, vol. 44(C), pages 186-217.
    14. Fatma Marrakchi Charfi & Mohamed Kadria, 2016. "Incomplete Exchange Rate Pass-Through Transmission To Prices: An Svar Model For Tunisia," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 11(04), pages 1-23, December.
    15. Idrisov, Georgy (Идрисов, Георгий) & Ponomarev, Yury (Пономарев, Юрий) & Pleskachev, Yury Andreevich (Плескачев, Юрий Андреевич), 2016. "Analysis of Joint Exchange Rate Pass-Through and Import Duty Rates in the Russian Economy [Анализ Совместного Эффекта Переноса Обменного Курса И Ввозных Пошлин В Цены В Российской Экономике]," Working Papers 1666, Russian Presidential Academy of National Economy and Public Administration.
    16. Michael Debabrata Patra & Joice John, 2018. "Non-Linear, Asymmetric and TimeVarying Exchange Rate Pass-Through: Recent Evidence from India," Working Papers id:12700, eSocialSciences.
    17. Bouakez, Hafedh & Rebei, Nooman, 2008. "Has exchange rate pass-through really declined? Evidence from Canada," Journal of International Economics, Elsevier, vol. 75(2), pages 249-267, July.
    18. Nidhaleddine Ben Cheikh & Christophe Rault, 2017. "Investigating first-stage exchange rate pass-through: Sectoral and macro evidence from euro area countries," The World Economy, Wiley Blackwell, vol. 40(12), pages 2611-2638, December.
    19. Cuitiño, María Fernanda & Medina, Juan Pablo & Zacheo, Laura, 2022. "Conditional exchange rate pass-through and monetary policy credibility: Insights from Uruguay and Chile," Economic Modelling, Elsevier, vol. 114(C).
    20. Naz, Farah & Mohsin, Asma & Zaman, Khalid, 2012. "Exchange rate pass-through in to inflation: New insights in to the cointegration relationship from Pakistan," Economic Modelling, Elsevier, vol. 29(6), pages 2205-2221.
    21. Aleem, Abdul & Lahiani, Amine, 2014. "Monetary policy credibility and exchange rate pass-through: Some evidence from emerging countries," Economic Modelling, Elsevier, vol. 43(C), pages 21-29.

    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • 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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ijc:ijcjou:y:2019:q:3:a:2. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Bank for International Settlements (email available below). General contact details of provider: https://www.ijcb.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.