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Transmission of Exchange Rate Shocks into Domestic Inflation: The Case of the Czech Republic

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This paper aims at estimating the exchange rate pass-through (ERPT) for the Czech Republic. The existing empirical literature does not come to a consensus about the degree of pass-through to Czech inflation. Since there is no unique approach regarding how to measure ERPT, the author uses 11 specifications, including some along the distribution chain in the spirit of McCarthy (2007). She tries to explore the properties of exchange rate shock transmission by comparing impulse responses. In addition, she tries to account for possible variation in time. Finally, she explores how the pass-through differs between tradable (3 sub-groups) and non-tradable goods. She finds that the speed of exchange rate shock trans-mission to all prices is quite high. However, in absolute terms, ERPT does not exceed 25–30 %.

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Article provided by Charles University Prague, Faculty of Social Sciences in its journal Finance a uver - Czech Journal of Economics and Finance.

Volume (Year): 59 (2009)
Issue (Month): 2 (June)
Pages: 137-152

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Handle: RePEc:fau:fauart:v:59:y:2009:i:2:p:137-152
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  1. Dalia S Hakura & Ehsan U. Choudhri, 2001. "Exchange Rate Pass-Through to Domestic Prices; Does the Inflationary Environment Matter?," IMF Working Papers 01/194, .
  2. Michele Ca’ Zorzi & Elke Hahn & Marcelo Sánchez, 2007. "Exchange Rate Pass-Through in Emerging Markets," The IUP Journal of Monetary Economics, IUP Publications, vol. 0(4), pages 84-102, November.
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  16. 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.
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  28. Korhonen, Iikka & Wachtel, Paul, 2006. "A note on exchange rate pass-through in CIS countries," Research in International Business and Finance, Elsevier, vol. 20(2), pages 215-226, June.
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