Exchange Rate Pass-Through and Monetary Policy: A Cross-Commodity Analysis
AbstractThis paper investigates how a change in monetary policy affects the degree and the speed of exchange rate pass-through to import prices in the emerging market economy, using a newly constructed data set from Taiwan's trading commodities. First, the analytical framework is set up following Goldberg and Knetter (1997) and Campa and Goldberg (2005). Next, the period-by-period and the multiple-period cumulative effects of monetary policy on the degree of exchange rate pass-through can be traced out. The dynamic panel data model is then estimated by Bun and Carree's (2005) bias-corrected approach, which enjoys easy calculation and robust testing performances, leading to more reliable empirical results. Our cross-commodity evidence strongly supports the partial pass-through in the short run and the complete pass-through in the long run. Moreover, following a change in monetary policy, this pass-through effect increases during several initial periods and declines to zero over time.
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Bibliographic InfoArticle provided by M.E. Sharpe, Inc. in its journal Emerging Markets Finance and Trade.
Volume (Year): 46 (2010)
Issue (Month): 6 (November)
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Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=111024
dynamic panel; emerging market; exchange rate pass-through; monetary policy;
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