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Exchange Rate Pass-Through in Emerging Markets

Author

Listed:
  • Michele Ca’ Zorzi
  • Elke Hahn
  • Marcelo Sánchez

Abstract

This paper examines the degree of Exchange Rate Pass-Through (ERPT) to prices in 12 emerging markets in Asia, Latin America and Central and Eastern Europe. The results, based on three alternative vector autoregressive models, partly overturn the conventional wisdom that ERPT into both import and consumer prices is always higher in ‘emerging’ than in ‘developed’ countries. For emerging markets with only one digit inflation (most notably the Asian countries), pass-through to import and consumer prices is found to be low and not very dissimilar from the levels of developed economies. The paper also finds robust evidence for a positive relationship between the degree of the ERPT and inflation, in line with Taylor’s hypothesis once two outlier countries—Argentina and Turkey— are excluded from the analysis. Finally, the presence of a positive link between import openness and ERPT, while plausible theoretically, finds only weak empirical support.

Suggested Citation

  • 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.
  • Handle: RePEc:icf:icfjmo:v:05:y:2007:i:4:p:84-102
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    More about this item

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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