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Emerging Floaters: pass-throughs and (some) new commodity currencies

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  • Emanuel Kohlscheen

Abstract

In spite of early skepticism on the merits of floating exchange rate regimes in emerging markets, 8 of the 25 largest countries in this group have now had a floating exchange rate regime for more than a decade. Using parsimonious VAR specifications covering the period of floating exchange rates, this study computes the dynamics of exchange rate pass-throughs to consumer price indices. We find that pass-throughs have typically been moderate even though emerging floaters have seen considerable nominal and real exchange rate volatilities. Previous studies that set out to estimate exchange rate pass-throughs ignored changes in policy regimes, making them vulnerable to the Lucas critique. We find that, within the group of emerging floaters, estimated pass-throughs are higher for countries with greater nominal exchange rate volatilities and that trade more homogeneous goods. These findings are consistent with the pass-through model of Floden and Wilander (2006) and earlier findings by Campa and Goldberg (2005), respectively. Furthermore, we find that the Indonesian Rupiah, the Thai Baht and possibly the Mexican Peso are commodity currencies, in the sense that their real exchange rates are cointegrated with international commodity prices.

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Bibliographic Info

Paper provided by Central Bank of Brazil, Research Department in its series Working Papers Series with number 224.

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Date of creation: Nov 2010
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Handle: RePEc:bcb:wpaper:224

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  1. Joseph E. Gagnon & Jane Ihrig, 2001. "Monetary policy and exchange rate pass-through," International Finance Discussion Papers 704, Board of Governors of the Federal Reserve System (U.S.).
  2. Froot, Kenneth A & Klemperer, Paul D, 1989. "Exchange Rate Pass-Through When Market Share Matters," American Economic Review, American Economic Association, vol. 79(4), pages 637-54, September.
  3. 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.
  4. Carmen M. Reinhart, 2000. "Mirage of Floating Exchange Rates," American Economic Review, American Economic Association, vol. 90(2), pages 65-70, May.
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Citations

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Cited by:
  1. Pascal Towbin & Sebastian Weber, 2011. "Limits of Floating Exchange Rates: the Role of Foreign Currency Debt and Import Structure," IMF Working Papers 11/42, International Monetary Fund.
  2. Adriana Soares Sales & João Barata Ribeiro Blanco Barroso, 2012. "Coping with a Complex Global Environment: a Brazilian perspective on emerging market issues," Working Papers Series 292, Central Bank of Brazil, Research Department.
  3. Tabak, Benjamin M. & Takami, Marcelo & Rocha, Jadson M.C. & Cajueiro, Daniel O. & Souza, Sergio R.S., 2014. "Directed clustering coefficient as a measure of systemic risk in complex banking networks," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 394(C), pages 211-216.
  4. International Monetary Fund, 2012. "The Relationship between the Foreign Exchange Regime and Macroeconomic Performance in Eastern Africa," IMF Working Papers 12/148, International Monetary Fund.
  5. 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.
  6. Emanuel Kohlscheen, 2012. "Order Flow and the Real: Indirect Evidence of the Effectiveness of Sterilized Interventions," Working Papers Series 273, Central Bank of Brazil, Research Department.
  7. Emanuel Kohlscheen, 2011. "The Impact of Monetary Policy on the Exchange Rate: puzzling evidence from three emerging economies," Working Papers Series 259, Central Bank of Brazil, Research Department.
  8. Lin, Po-Chun & Wu, Chung-Shu, 2012. "Exchange rate pass-through in deflation: The case of Taiwan," International Review of Economics & Finance, Elsevier, vol. 22(1), pages 101-111.
  9. Emanuel Kohlscheen, 2013. "Long-Run Determinants of the Brazilian Real: a closer look at commodities," Working Papers Series 314, Central Bank of Brazil, Research Department.

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