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Exchange Rate Pass-Through in Candidate Countries

Listed author(s):
  • Coricelli, Fabrizio
  • Jazbec, Bostjan
  • Masten, Igor

In this Paper we analyse the link between the choice of exchange rate regime and inflationary performance in four EU accession countries: the Czech Republic, Hungary, Poland and Slovenia. Estimation of pass-through effect of exchange rate changes to CPI inflation is complemented by I(2) co-integration analysis of stochastic nominal trends. The results allow a clear ranking of countries according to the size of the pass-through effect and the importance of exchange rate shocks to overall inflationary performance. In particular, we find that perfect pass-through effect can be associated with accommodative exchange rate policy, which can moreover become the most important source of inflationary pressures. The analysis suggests that for CEEC-4 the early adoption of the euro can provide the most efficient framework for reducing inflation.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3894.

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Date of creation: May 2003
Handle: RePEc:cpr:ceprdp:3894
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