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Exchange rate pass-through to Estonian prices

  • Aurelijus Dabušinskas

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    The objective of the paper is to further our understanding of the relationship between changes in the nominal exchange rate and prices in a small open economy. The paper uses data from 1995 Q1-2003 Q1 for Estonia to investigate the exchange rate pass-through to import, producer and consumer prices, both total and disaggregated. Although the currency board arrangement eliminates exchange rate fluctuations from a very significant share of the Estonian effective currency basket, the remaining variation in the nominal exchange rate can be regarded as exogenous (determined by the anchor currency), a useful feature when estimating the pass-through. In the case of import unit values, the pass-through tends to be statistically significant for textiles and commodity-type goods, such as petroleum, non-metal mineral products and basic metals. In the case of producer prices, the long-run pass-through is evident in textiles and chemical products. Point estimates of the long-run pass-through to aggregate import and producer prices fall between 40 and 50%, though the precision of these estimates is low. In contrast, no significant exchange rate pass-through is estimated to consumer prices, measured by total CPI or its tradable component.

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    File URL: http://www.eestipank.ee/sites/eestipank.ee/files/publication/en/WorkingPapers/2003/wp_1003.pdf
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    Paper provided by Bank of Estonia in its series Bank of Estonia Working Papers with number 2003-10.

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    Date of creation: 10 Dec 2003
    Date of revision: 10 Dec 2003
    Publication status: published
    Handle: RePEc:eea:boewps:wp2003-10
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