Recent developments in exchange rate pass-through: What have we learned from uncertain times?

This study analyzes the influence of geopolitical uncertainty on the degree of exchange rate pass-through (ERPT) into domestic prices for a sample of advanced and emerging economies. We implement a dynamic panel threshold regression model to capture the possible presence of regime shifts in the exchange transmission. The estimation results suggest significant regime-dependence of the ERPT to geopolitical factors, which is more apparent for the sample of developed countries. Primarily, recent adverse geopolitical events seem to lead to higher rates of pass-through to both import and consumer prices. As the uncertainty surrounding the Ukrainian crisis is likely to continue, it is challenging for policymakers to prevent exchange rate changes from fueling the growing inflationary pressures.