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Exchange rate pass through, macro fundamentals and regime choice in Latin America

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  • Ghosh, Amit

Abstract

The impact of changes in exchange rate on inflation is an issue of extreme importance for nations with a history of high inflation. While there have been significant studies on industrial and advanced economies, little analysis has been conducted on smaller economies that are open to trade and financial relationships. This paper estimates exchange rate pass-through (ERPT) into CPI and import prices from 1970 to 2010 for nine Latin American nations. ERPT is further estimated for each decade documenting declining pass-through after the turn of the millennium. The paper also examines the impact of macro fundamentals on ERPT, and finds monetary policy stability, inflation rate and trade openness to have a positive impact on pass-through. Finally, de facto exchange rate flexibility indices are constructed and ERPT rates are found to negatively affect them.

Suggested Citation

  • Ghosh, Amit, 2013. "Exchange rate pass through, macro fundamentals and regime choice in Latin America," Journal of Macroeconomics, Elsevier, vol. 35(C), pages 163-171.
  • Handle: RePEc:eee:jmacro:v:35:y:2013:i:c:p:163-171
    DOI: 10.1016/j.jmacro.2012.09.001
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    Cited by:

    1. Augusto de la Torre & Eduardo Levy Yeyati & Guillermo Beylis & Tatiana Didier & Carlos Rodriguez Castelan & Sergio Schmukler, "undated". "Inequality in a Lower Growth Latin America : LAC Semiannual Report, October 2014," World Bank Other Operational Studies 20413, The World Bank.
    2. Pierre-Richard Agénor & Luiz A. Pereira da Silva, 2013. "Inflation Targeting and Financial Stability: A Perspective from the Developing World," Working Papers Series 324, Central Bank of Brazil, Research Department.
    3. Gabriela Contreras & Francisco Pinto, 2016. "Traspaso de tipo de cambio nominal a inflación desagregada en Chile," Notas de Investigación Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 19(2), pages 154-170, August.
    4. repec:eee:riibaf:v:41:y:2017:i:c:p:247-259 is not listed on IDEAS
    5. Elías Albagli & Alberto Naudon & Rodrigo Vergara, 2015. "Inflation Dynamics in LATAM: A Comparison with Global Trends and Implications for Monetary Policy," Economic Policy Papers Central Bank of Chile 58, Central Bank of Chile.
    6. Hem Basnet & Subhash Sharma, 2015. "Exchange rate movements and policy coordination in Latin America," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 39(4), pages 679-696, October.
    7. repec:ris:betajl:0015 is not listed on IDEAS
    8. Roberto Alvarez & Jose De Gregorio, 2014. "Understanding Differences in Growth Performance in Latin America and Developing Countries between the Asian and Global Financial Crises," Working Paper Series WP14-11, Peterson Institute for International Economics.
    9. Jiménez-Rodríguez, Rebeca & Morales-Zumaquero, Amalia, 2016. "A new look at exchange rate pass-through in the G-7 countries," Journal of Policy Modeling, Elsevier, vol. 38(5), pages 985-1000.

    More about this item

    Keywords

    Inflation; Exchange rate pass-through; Monetary policy stability; de facto exchange rate flexibility;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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