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Impact of exchange rate changes on domestic inflation: a study of a small Pacific Island economy

Author

Listed:
  • Jayaraman, T. K.
  • Choong, Chee-Keong

Abstract

This paper investigates the effect of changes in exchange rate on consumer price level, in Fiji, known as exchange rate pass-through during a thirty year period (1982-2009). Specifically, three time periods are focused on: the pre-coup years (1982-1986); post coup years (1987-2009); and full time period (1982-2009). Monthly data on consumer price index, nominal exchange rate, monetary aggregate and interest rate are utilized. The study results show that the degree of exchange rate pass-through to domestic price was relatively low during the entire sample period at 0.183. It was 0.453 and 0.373 for the pre and post coups periods. Regardless of the sample periods under study, the monetary aggregate, as a variable plays a pivotal in stabilizing the price level.

Suggested Citation

  • Jayaraman, T. K. & Choong, Chee-Keong, 2011. "Impact of exchange rate changes on domestic inflation: a study of a small Pacific Island economy," MPRA Paper 33719, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:33719
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    File URL: https://mpra.ub.uni-muenchen.de/33719/1/MPRA_paper_33719.pdf
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    References listed on IDEAS

    as
    1. Pinelopi Koujianou Goldberg & Michael M. Knetter, 1997. "Goods Prices and Exchange Rates: What Have We Learned?," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1243-1272, September.
    2. Ki-Ho Kim, 1998. "US inflation and the dollar exchange rate: a vector error correction model," Applied Economics, Taylor & Francis Journals, vol. 30(5), pages 613-619.
    3. George A. Kahn, 1987. "Dollar depreciation and inflation," Economic Review, Federal Reserve Bank of Kansas City, issue Nov, pages 32-49.
    4. Anderton, Robert, 2003. "Extra-euro area manufacturing import prices and exchange rate pass-through," Working Paper Series 219, European Central Bank.
    5. Menon, Jayant, 1995. " Exchange Rate Pass-Through," Journal of Economic Surveys, Wiley Blackwell, vol. 9(2), pages 197-231, June.
    6. Joseph E. Gagnon & Jane E. Ihrig, 2001. "Monetary policy and exchange rate pass-through," International Finance Discussion Papers 704, Board of Governors of the Federal Reserve System (U.S.).
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Exchange rate pass-through; price; monetary measure; cointegration; Granger causality;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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