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Exchange Rate Pass-Through and Monetary Policy: A Cross-Commodity Analysis

Listed author(s):
  • Jui-Chuan Chang
  • Ching-Chuan Tsong
Registered author(s):

    This paper investigates how a change in monetary policy affects the degree and the speed of exchange rate pass-through to import prices in the emerging market economy, using a newly constructed data set from Taiwan's trading commodities. First, the analytical framework is set up following Goldberg and Knetter (1997) and Campa and Goldberg (2005). Next, the period-by-period and the multiple-period cumulative effects of monetary policy on the degree of exchange rate pass-through can be traced out. The dynamic panel data model is then estimated by Bun and Carree's (2005) bias-corrected approach, which enjoys easy calculation and robust testing performances, leading to more reliable empirical results. Our cross-commodity evidence strongly supports the partial pass-through in the short run and the complete pass-through in the long run. Moreover, following a change in monetary policy, this pass-through effect increases during several initial periods and declines to zero over time.

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    Article provided by M.E. Sharpe, Inc. in its journal Emerging Markets Finance and Trade.

    Volume (Year): 46 (2010)
    Issue (Month): 6 (November)
    Pages: 106-120

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    Handle: RePEc:mes:emfitr:v:46:y:2010:i:6:p:106-120
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