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Exchange Rate Pass-Through in Developing and Emerging Markets: A Survey of Conceptual, Methodological and Policy Issues, and Selected Empirical Findings

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  • Janine Aron
  • Ronald Macdonald
  • John Muellbauer

Abstract

Global integration has increased the international linkages of financial markets for emerging market countries. A key channel for the international transmission of inflation and economic cycles is from exchange rate movements to domestic prices, known as exchange rate pass-through (ERPT). This article reviews the conceptual, methodological and policy issues connected with ERPT in emerging market and developing countries, and critically surveys selected empirical studies. A key contribution is to categorise and compare the heterogeneous methodologies used to extract ERPT measures in the empirical literature. Single equation models and systems methods are contrasted; frequent misspecifications that produce unreliable ERPT estimates are highlighted. The discerning policy-maker needs to ascertain by which methods ERPT measures were calculated, the controls and restrictions applied, and the time frame and stability of the estimates.

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  • Janine Aron & Ronald Macdonald & John Muellbauer, 2014. "Exchange Rate Pass-Through in Developing and Emerging Markets: A Survey of Conceptual, Methodological and Policy Issues, and Selected Empirical Findings," Journal of Development Studies, Taylor & Francis Journals, vol. 50(1), pages 101-143, January.
  • Handle: RePEc:taf:jdevst:v:50:y:2014:i:1:p:101-143
    DOI: 10.1080/00220388.2013.847180
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    4. Sinyakov, A. & Chernyadyev, D. & Sapova, A., 2019. "Estimating the Exchange Rate Pass-Through Effect on Producer Prices of Final Products Based on Micro-Data of Russian Companies," Journal of the New Economic Association, New Economic Association, vol. 41(1), pages 128-157.
    5. López-Villavicencio, Antonia & Mignon, Valérie, 2017. "Exchange rate pass-through in emerging countries: Do the inflation environment, monetary policy regime and central bank behavior matter?," Journal of International Money and Finance, Elsevier, vol. 79(C), pages 20-38.
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    8. Antonio Soares Martins Neto & Gilberto Tadeu Lima, 2016. "Competitive Exchange Rate And Infrastructure In A Macrodynamic Of Economic Growth," Anais do XLIII Encontro Nacional de Economia [Proceedings of the 43rd Brazilian Economics Meeting] 082, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    9. Sergio Iván Prada & Julio C. Alonso & Julián Fernández, 2019. "Exchange rate pass-through into consumer healthcare prices in Colombia," Revista Cuadernos de Economía, Universidad Nacional de Colombia -FCE - CID, vol. 38(77), pages 523-550, July.
    10. Ülke, Volkan, 2015. "The Degree of Currency Substitution and Exchange Rate Pass-Through," MPRA Paper 75633, University Library of Munich, Germany, revised 15 Dec 2015.
    11. Fatma Marrakchi Charfi & Mohamed Kadria, 2016. "Incomplete Exchange Rate Pass-Through Transmission To Prices: An Svar Model For Tunisia," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 11(04), pages 1-23, December.
    12. Safet Kurtović & Blerim Halili & Nehat Maxhuni, 2019. "Exchange rate pass-through into import prices: evidence from Central and Southeast European countries," Indian Economic Review, Springer, vol. 54(1), pages 51-80, June.
    13. Rebeca Jiménez‐Rodríguez & Amalia Morales‐Zumaquero, 2020. "BRICS: How important is the exchange rate pass‐through?," The World Economy, Wiley Blackwell, vol. 43(3), pages 781-793, March.
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    18. Alain Kabundi & Asi Mbelu, 2018. "Has the Exchange Rate Pass‐Through changed in South Africa?," South African Journal of Economics, Economic Society of South Africa, vol. 86(3), pages 339-360, September.
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    20. Durevall, Dick, 2017. "Cost Pass-Through in the Swedish Coffee Market," Working Papers in Economics 697, University of Gothenburg, Department of Economics.
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    23. Jovic, Srdjan & Smigic Miladinovic, Jasmina & Micic, Radmila & Markovic, Sanja & Rakic, Goran, 2019. "Analysing of exchange rate and gross domestic product (GDP) by adaptive neuro fuzzy inference system (ANFIS)," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 513(C), pages 333-338.
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    25. Baharumshah, Ahmad Zubaidi & Soon, Siew-Voon & Wohar, Mark E., 2017. "Markov-switching analysis of exchange rate pass-through: Perspective from Asian countries," International Review of Economics & Finance, Elsevier, vol. 51(C), pages 245-257.

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