IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

Exchange Rate Pass-Through and the Frequency of Price Adjustment across Different Inflation Regimes

Listed author(s):
  • Pavle Petrović

    ()

    (Faculty of Economics Belgrade, University of Belgrade, Serbia)

  • Zorica Mladenović

    ()

    (Faculty of Economics Belgrade, University of Belgrade, Serbia)

Registered author(s):

    The paper explores the link between the inflationary environment and the size of the exchange rate pass-through (ERPT) into domestic prices, as inflation descends from an extreme, second highest and second longest hyperinflation in the 20th century, to high and then moderate inflation in Serbia. We found that ERPT decreases with a decline in the inflation level, variability and persistence, thus supplementing findings previously acquired in panel studies across countries. Our findings can be explained by surging empirical evidence on state contingent behavior of pricing, which indicates a sharp increase in the frequency of price adjustment as one moves from moderate, via high to hyperinflation, suggesting that the degree of price rigidities is a key determinant of the size and speed of ERPT. ERPT estimates are embedded in careful analysis of inflation episodes in Serbia, showing that hyper and high inflation episodes subscribe to the same, fiscal explanation, as opposed to the moderate inflation ones, where supply and demand shocks have been the main inflation drivers.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www.panoeconomicus.rs/casopis/2015_4/01%20-%20Pavle%20Petrovic%20and%20Zorica%20Mladenovic.pdf
    Download Restriction: no

    Article provided by Savez ekonomista Vojvodine, Novi Sad, Serbia in its journal Panoeconomicus.

    Volume (Year): 62 (2015)
    Issue (Month): 4 (September)
    Pages: 409-427

    as
    in new window

    Handle: RePEc:voj:journl:v:62:y:2015:i:4:p:409-427
    Contact details of provider: Web page: http://www.panoeconomicus.rs/

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as
    in new window


    1. Jeannine Bailliu & Eiji Fujii, 2004. "Exchange Rate Pass-Through and the Inflation Environment in Industrialized Countries: An Empirical Investigation," Staff Working Papers 04-21, Bank of Canada.
    2. Engel, Charles, 2002. "The Responsiveness of Consumer Prices to Exchange Rates: A Synthesis of Some New Open Economy Macro Models," Manchester School, University of Manchester, vol. 70(0), pages 1-15, Supplemen.
    3. Jeffrey Frankel & David Parsley & Shang-Jin Wei, 2012. "Slow Pass-through Around the World: A New Import for Developing Countries?," Open Economies Review, Springer, vol. 23(2), pages 213-251, April.
    4. Frederic S. Mishkin, 2008. "Exchange Rate Pass-Through And Monetary Policy," NBER Working Papers 13889, National Bureau of Economic Research, Inc.
    5. Jane E. Ihrig & Mario Marazzi & Alexander D. Rothenberg, 2006. "Exchange-rate pass-through in the G-7 countries," International Finance Discussion Papers 851, Board of Governors of the Federal Reserve System (U.S.).
    6. Gita Gopinath & Oleg Itskhoki, 2010. "Frequency of Price Adjustment and Pass-Through," The Quarterly Journal of Economics, Oxford University Press, vol. 125(2), pages 675-727.
    7. Engsted, Tom, 1996. "The monetary model of the exchange rate under hyperinflation: New encouraging evidence," Economics Letters, Elsevier, vol. 51(1), pages 37-44, April.
    8. Choudhri, Ehsan U. & Hakura, Dalia S., 2006. "Exchange rate pass-through to domestic prices: Does the inflationary environment matter?," Journal of International Money and Finance, Elsevier, vol. 25(4), pages 614-639, June.
    9. Taylor, Mark P, 1991. "The Hyperinflation Model of Money Demand Revisited," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(3), pages 327-351, August.
    10. Devereux, Michael B. & Yetman, James, 2010. "Price adjustment and exchange rate pass-through," Journal of International Money and Finance, Elsevier, vol. 29(1), pages 181-200, February.
    11. Mills,Terence C. & Markellos,Raphael N., 2008. "The Econometric Modelling of Financial Time Series," Cambridge Books, Cambridge University Press, number 9780521710091, December.
    12. Mills,Terence C. & Markellos,Raphael N., 2008. "The Econometric Modelling of Financial Time Series," Cambridge Books, Cambridge University Press, number 9780521883818, December.
    13. Engsted, Tom, 1994. "The Classic European Hyperinflations Revisited: Testing the Cagan Model Using a Cointegrated VAR Approach," Economica, London School of Economics and Political Science, vol. 61(243), pages 331-343, August.
    14. Choudhri, Ehsan U. & Faruqee, Hamid & Hakura, Dalia S., 2005. "Explaining the exchange rate pass-through in different prices," Journal of International Economics, Elsevier, vol. 65(2), pages 349-374, March.
    15. Etienne Gagnon, 2009. "Price Setting during Low and High Inflation: Evidence from Mexico," The Quarterly Journal of Economics, Oxford University Press, vol. 124(3), pages 1221-1263.
    16. Atsuyuki Naka & David Tufte, 1997. "Examining impulse response functions in cointegrated systems," Applied Economics, Taylor & Francis Journals, vol. 29(12), pages 1593-1603.
    17. Juselius, Katarina, 2006. "The Cointegrated VAR Model: Methodology and Applications," OUP Catalogue, Oxford University Press, number 9780199285679.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:voj:journl:v:62:y:2015:i:4:p:409-427. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ivana Horvat)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.