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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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    2. Comunale, Mariarosaria & Simola, Heli, 2018. "The pass-through to consumer prices in CIS economies: The role of exchange rates, commodities and other common factors," Research in International Business and Finance, Elsevier, vol. 44(C), pages 186-217.
    3. 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.
    4. repec:bla:sajeco:v:86:y:2018:i:3:p:339-360 is not listed on IDEAS
    5. 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.
    6. repec:eee:phsmap:v:513:y:2019:i:c:p:333-338 is not listed on IDEAS
    7. Francesca G Caselli & Agustin Roitman, 2016. "Non-Linear Exchange Rate Pass-Through in Emerging Markets," IMF Working Papers 16/1, International Monetary Fund.
    8. Franz Ruch & Neil Rankin & Stan du Plessis, 2016. "Decomposing inflation using micro-price-level data- South Africa’s pricing dynamics," Working Papers 7353, South African Reserve Bank.
    9. Ana Lariau & Moataz El-Said & Misa Takebe, 2016. "An Assessment of the Exchange Rate Pass-Through in Angola and Nigeria," IMF Working Papers 16/191, International Monetary Fund.
    10. repec:bla:afrdev:v:29:y:2017:i:3:p:446-457 is not listed on IDEAS
    11. repec:rnp:ecopol:ep1733 is not listed on IDEAS
    12. 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].
    13. Sukudhew (Sukhdave) Singh, 2016. "Economic changes, inflation dynamics and policy responses: the Malaysian experience," BIS Papers chapters,in: Bank for International Settlements (ed.), Inflation mechanisms, expectations and monetary policy, volume 89, pages 231-245 Bank for International Settlements.
    14. 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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    16. repec:eee:reveco:v:51:y:2017:i:c:p:245-257 is not listed on IDEAS
    17. Antonio Soares Martins Neto & Gilberto Tadeu Lima, 2017. "Competitive Exchange Rate and Public Infrastructure in a Macrodynamic of Economic Growth," Metroeconomica, Wiley Blackwell, vol. 68(4), pages 792-815, November.
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    19. repec:nea:journl:y:2019:i:41:p:128-157 is not listed on IDEAS
    20. Durevall, Dick, 2017. "Cost Pass-Through in the Swedish Coffee Market," Working Papers in Economics 697, University of Gothenburg, Department of Economics.
    21. 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.

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