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Inflation targeting and the pass-through effect: The case of Mongolia

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  • Taguchi, Hiroyuki

Abstract

This paper aims to provide empirical evidence on the relationship between inflation targeting and the pass-through effect from exchange rate to consumer prices, focusing on the case of Mongolia. The study estimates a vector-autoregressive model, and examines the impulse responses of consumer prices to the shock of exchange rate for the pre-inflation targeting period and the post-inflation targeting period. The empirical analysis identified the existence of the pass-through effect during the pre-inflation targeting period and the loss of the pass-through during the post-inflation targeting period. It was speculated that the loss of the pass-through comes from the “forward-looking” monetary policy rule in Mongolian inflation targeting, so that it can work on the expectations of domestic agents such that they are less inclined to change prices in response to a given exchange rate shock.

Suggested Citation

  • Taguchi, Hiroyuki, 2019. "Inflation targeting and the pass-through effect: The case of Mongolia," MPRA Paper 92988, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:92988
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    More about this item

    Keywords

    Inflation Targeting; Pass-through Effect; Mongolia; Vector Autoregressive Model; Forward-looking Rule;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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