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Revisiting the Exchange Rate Pass-through in Emerging Markets

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  • beldi, lamia
  • djelassi, mouldi
  • kadria, mohamed

Abstract

This paper aims to investigate the links between exchange rate pass-through (ERPT) and monetary policy. We examine the degree of ERPT to consumer prices for 11 emerging markets (6 inflation targeters and 5 non-inflation targeters) using both multivariate cointegrated VAR (CVAR) and impulse responses derived from the vector error correction model (VECM). Results of cointegration analyses suggest that the degree of ERPT is lower in ITers than in non-ITers. Besides, the impulse response estimates at 48 months are extremely close to the cointegration estimates in IT countries compared to those non-IT countries. The adjustment process is fully completed during the considered time horizon in the impulse response analysis. This finding confirms the literature review on the importance of the inflation environment and the monetary policy credibility in determining ERPT. The level of ERPT tend to decline in the countries where monetary policy moved strongly towards stabilizing inflation.

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  • beldi, lamia & djelassi, mouldi & kadria, mohamed, 2017. "Revisiting the Exchange Rate Pass-through in Emerging Markets," MPRA Paper 80311, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:80311
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    References listed on IDEAS

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    7. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    8. Michele Ca’ Zorzi & Elke Hahn & Marcelo Sánchez, 2007. "Exchange Rate Pass-Through in Emerging Markets," The IUP Journal of Monetary Economics, IUP Publications, vol. 0(4), pages 84-102, November.
    9. Jonathan McCarthy, 2007. "Pass-Through of Exchange Rates and Import Prices to Domestic Inflation in Some Industrialized Economies," Eastern Economic Journal, Eastern Economic Association, vol. 33(4), pages 511-537, Fall.
    10. Takatoshi Ito & Kiyotaka Sato, 2008. "Exchange Rate Changes and Inflation in Post-Crisis Asian Economies: Vector Autoregression Analysis of the Exchange Rate Pass-Through," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(7), pages 1407-1438, October.
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    Cited by:

    1. Yilmaz, Nejat & Yucel, Eray, 2021. "Exchange Rate Pass-Through to Consumer Prices in Turkey: Nonparametric Kernel Estimation Evidence," MPRA Paper 105895, University Library of Munich, Germany.

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    More about this item

    Keywords

    Exchange Rate pass-through; Domestic prices; Cointegration; Emerging Markets.;
    All these keywords.

    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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