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

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  • Jui-Chuan Chang
  • Ching-Chuan Tsong

Abstract

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.

Suggested Citation

  • Jui-Chuan Chang & Ching-Chuan Tsong, 2010. "Exchange Rate Pass-Through and Monetary Policy: A Cross-Commodity Analysis," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 46(6), pages 106-120, November.
    • Handle: RePEc:mes:emfitr:v:46:y:2010:i:6:p:106-120
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    Cited by:

    1. Umar Bala & Patchaya Songsiengchai & Lee Chin, 2017. "Asymmetric behavior of exchange rate pass-through in Thailand," Economics Bulletin, AccessEcon, vol. 37(2), pages 1289-1297.
    2. Khun, Channary & Lim, Sokchea & Basnet, Hem, 2021. "Exchange Rate Pass-Through into Japanese Import Prices: Evidence at Both Bilateral and Product Levels," American Business Review, Pompea College of Business, University of New Haven, vol. 24(2), pages 115-132, November.
    3. Farhan AHMED & Muhammad OWAIS & Sandhya KUMARI & Rohit RAJJANI, 2018. "Exchange rate pass-through to macroeconomic indicators using Vector Auto Regression: Empirical evidence from Pakistan," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(3(616), A), pages 61-76, Autumn.

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