Explaining the Exchange Rate Pass-Through in Hungary: Simulations with the NIGEM Model
AbstractThis paper explores the major determinants of the exchange rate pass-through to CPI. The simulations were performed with the Bank's estimated Hungarian block linked to the NIGEM model of the National Institute of Economic and Social Research (NIESR). The modelling framework offers some insight into the role of different markets in the price-exchange rate relationship. The paper gives an analysis of the relative importance of expectations, goods and labour market parameters. Our results show that the contribution of goods and labour market parameters to explaining the economy-wide exchange rate pass-through changes over time. While goods market adjustment is significant from the start of an exchange rate shock, the labour market starts to gain importance only from year three and onwards. More specifically, the effect of mark-up adjustment prevails over the whole horizon, which indicates that it is the most significant channel in exchange rate pass-through. The slow appearance of labour market effects might be explained by the presence of nominal wage rigidities, which make the adjustment in quantities faster. These results may explain the current labour market behaviour seen after the introduction of the inflation-targeting regime in Hungary. Hence we argue that the exchange rate shock in 2001 is still too close in time to draw conclusions on the role of labour market rigidities in Hungary.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Magyar Nemzeti Bank (the central bank of Hungary) in its series MNB Working Papers with number 2003/5.
Length: 23 pages
Date of creation: 2003
Date of revision:
Inflation; Exchange rate; Pass-through; Modelling; Transition economies.;
Find related papers by JEL classification:
- E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
- E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
- E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Balázs Égert & Ronald MacDonald, 2006.
"Monetary Transmission Mechanism in Transition Economies: Surveying the Surveyable,"
MNB Working Papers
2006/5, Magyar Nemzeti Bank (the central bank of Hungary).
- Balazs Egert & Ronald MacDonald, 2006. "Monetary Transmission Mechanism in Transition Economies: Surveying the Surveyable," CESifo Working Paper Series 1739, CESifo Group Munich.
- Jérôme Creel & Sandrine Levasseur, 2004.
"How would a fixed-exchange-rate regime fit the transition economies?. The cases of the Czech Republic, Hungary and Poland,"
Revue de l'OFCE,
Presses de Sciences-Po, vol. 91(5), pages 83-120.
- Jérôme Creel & Sandrine Levasseur, 2004. "How would a Fixed-Exchange-Rate Regime Fit the Transition Economies? The cases of the Czech Republic, Hungary and Poland," Sciences Po publications info:hdl:2441/3083, Sciences Po.
- Balázs Vonnák, 2007.
"The Hungarian Monetary Transmission Mechanism: an Assessment,"
MNB Working Papers
2007/3, Magyar Nemzeti Bank (the central bank of Hungary).
- Balazs Vonnak, 2008. "The Hungarian monetary transmission mechanism: an assessment," BIS Papers chapters, in: Bank for International Settlements (ed.), Transmission mechanisms for monetary policy in emerging market economies, volume 35, pages 235-257 Bank for International Settlements.
- Zoltán M. Jakab & Viktor Várpalotai & Balázs Vonnák, 2006. "How does monetary policy affect aggregate demand? A multimodel approach for Hungary," MNB Working Papers 2006/4, Magyar Nemzeti Bank (the central bank of Hungary).
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Johanna Jeney).
If references are entirely missing, you can add them using this form.