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Exchange Rate Pass-Through in Acceding Countries: The Role of Exchange Rate Regimes

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Author Info
Fabrizio CORICELLI
Bostjan JAZBEC
Igor MASTEN

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Abstract

This paper analyzes the link between the choice of exchange rate regime and inflationary performance in countries acceding to the EU. Estimation of pass-through effect of exchange rate changes to CPI inflation is complemented by I(2) cointegration analysis of stochastic nominal trends. The results allow a clear ranking of countries according to the size of the pass-through effect and the importance of exchange rate shocks to overall inflationary performance. The size of the pass-through effect can be associated with the degree of accommodation in the exchange rate policy. The paper concludes that an accommodative exchange rate policy is one of the main sources of inflationary pressures in accession countries.

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Paper provided by European University Institute in its series Economics Working Papers with number ECO2004/16.

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Date of creation: 2004
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Handle: RePEc:eui:euiwps:eco2004/16

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Find related papers by JEL classification:
E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
  2. Igor MASTEN, 2002. "How Important Is the Shock-Absorbing Role of the Real Exchange Rate?," Economics Working Papers ECO2002/06, European University Institute. [Downloadable!]
  3. G. Coenen & J.-L. Vega, 2001. "The demand for M3 in the euro area," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(6), pages 727-748. [Downloadable!]
    Other versions:
  4. Andreas Billmeier & Leo Bonato, 2002. "Exchange Rate Pass-Through and Monetary Policy in Croatia," IMF Working Papers 02/109, International Monetary Fund. [Downloadable!]
    Other versions:
  5. Ilan Goldfajn & Sergio R.C. Werlang, 2000. "The pass-through from depreciation to inflation : a panel study," Textos para discussão 423, Department of Economics PUC-Rio (Brazil). [Downloadable!]
  6. Douglas Laxton & Paolo Pesenti, 2003. "Monetary Rules for Small, Open, Emerging Economies," NBER Working Papers 9568, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  7. Johansen, S., 1991. "A Statistical Analsysis of Cointegration for I(2) Variables," Papers 77, Helsinki - Department of Economics.
    Other versions:
  8. Jordi Galí, 2001. "Targeting Inflation in an Economy with Staggered Price Setting," Working Papers Central Bank of Chile 123, Central Bank of Chile. [Downloadable!]
  9. Jose Manuel Campa & Linda S. Goldberg, 2002. "Exchange Rate Pass-Through into Import Prices: A Macro or Micro Phenomenon?," NBER Working Papers 8934, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  10. Darvas, Zsolt, 2001. "Exchange rate pass-through and real exchange rate in EU candidate countries," Discussion Paper Series 1: Economic Studies 2001,10, Deutsche Bundesbank, Research Centre. [Downloadable!]
  11. Søren Johansen, 2005. "Interpretation of Cointegrating Coefficients in the Cointegrated Vector Autoregressive Model," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 67(1), pages 93-104, 02. [Downloadable!] (restricted)
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  16. Choudhri, Ehsan U. & Faruqee, Hamid & Hakura, Dalia S., 2005. "Explaining the exchange rate pass-through in different prices," Journal of International Economics, Elsevier, vol. 65(2), pages 349-374, March. [Downloadable!] (restricted)
    Other versions:
  17. Carlos José García & Jorge Enrique Restrepo, 2001. "Price Inflation and Exchange Rate Pass-Through in Chile," Working Papers Central Bank of Chile 128, Central Bank of Chile. [Downloadable!]
  18. Michael Kumhof & Oya Celasun & Guillermo Calvo, 2002. "Nominal Exchange Rate Anchoring Under Inflation Inertia," IMF Working Papers 02/30, International Monetary Fund.
  19. Anindya Banerjee & Lynne Cockerell & Bill Russell, 2001. "An I(2) analysis of inflation and the markup," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 221-240. [Downloadable!]
  20. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September. [Downloadable!] (restricted)
  21. Coricelli, Fabrizio & Jazbec, Bostjan & Masten, Igor, 2003. "Exchange Rate Pass-Through in Candidate Countries," CEPR Discussion Papers 3894, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  22. Taylor, John B., 2000. "Low inflation, pass-through, and the pricing power of firms," European Economic Review, Elsevier, vol. 44(7), pages 1389-1408, June. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Tomás Slacík, . "(How) Will the Euro Affect Inflation in the Czech Republic? A contribution to the current debate," FIW Working Paper series 018, FIW. [Downloadable!]
  2. Victoria Dobrynskaya, 2007. "The Optimal Monetary Policy Under Incomplete Pass-Through And Asymmetric Price Rigidity," Working Papers WP13_2007_04, Laboratory for Macroeconomic Analysis. [Downloadable!]
  3. Anna Lipinska, 2006. "Monetary regime choice in the accession countries - a theoretical analysis," Computing in Economics and Finance 2006 243, Society for Computational Economics. [Downloadable!]
  4. Coricelli, Fabrizio & Égert, Balázs & MacDonald, Ronald, 2006. "Monetary transmission mechanism in Central and Eastern Europe: Gliding on a wind of change," BOFIT Discussion Papers 8/2006, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
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