Exchange Rate Changes and Inflation in Post-Crisis Asian Economies: VAR Analysis of the Exchange Rate Pass-Through
AbstractThe pass-through effects of exchange rate changes on the domestic prices in the East Asian countries are examined using a VAR analysis including several price indices and domestic macroeconomic variables as well as the exchange rate. Results from the VAR analysis show that (1) the degree of exchange rate pass-through to import prices was quite high in the crisis-hit countries; (2) the pass-through to CPI was generally low, with a notable exception of Indonesia: and (3) in Indonesia, both the impulse response of monetary policy variables to exchange rate shocks and that of CPI to monetary policy shocks are positive, large and statistically significant. Thus, Indonesia's accommodative monetary policy as well as the high degree of the CPI responsiveness to exchange rate changes was important factors that resulted in the spiraling effects of domestic price inflation and sharp nominal exchange rate depreciation in the post-crisis period.
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Bibliographic InfoPaper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 06018.
Length: 45 pages
Date of creation: Apr 2006
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Other versions of this item:
- Takatoshi Ito & Kiyotaka Sato, 2006. "Exchange Rate Changes and Inflation in Post-Crisis Asian Economies: VAR Analysis of the Exchange Rate Pass-Through," NBER Working Papers 12395, National Bureau of Economic Research, Inc.
- Takatoshi Ito & Kiyotaka Sato, 2006. "Exchange Rate Changes and Inflation in Post-Crisis Asian Economies: VAR Analysis of the Exchange Rate Pass-Through," CIRJE F-Series CIRJE-F-406, CIRJE, Faculty of Economics, University of Tokyo.
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-04-22 (All new papers)
- NEP-CBA-2006-04-22 (Central Banking)
- NEP-FMK-2006-04-22 (Financial Markets)
- NEP-IFN-2006-04-22 (International Finance)
- NEP-MAC-2006-04-22 (Macroeconomics)
- NEP-MON-2006-04-22 (Monetary Economics)
- NEP-SEA-2006-04-22 (South East Asia)
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