The pass-through from depreciation to inflation : a panel study
The paper studies the relationship between exchange rate depreciations and inflation using a sample of 71 countries in the period 1980-1998. The main determinants of the extent of inflationary pass-through of the depreciations (appreciations) are the cyclical component of output, the extent of initial overvaluation of the real exchange rate (RER), the initial rate of inflation, and the degree of openness of the economy. The paper finds that the pass-through coefficients increase the larger is the horizon measured, with its peak at 12-months. It also finds that RER misalignment is the most important determinant of inflation for emerging markets while the initial inflation is the most important variable for developed countries. Using the estimated model, the paper predicts somewhat higher inflation than actually observed in several well known large depreciation cases, even if one takes into account existing measures of exchange rate expectations. This suggests that policy makers should use caution when using past models to predict future inflation in the aftermath of large depreciations.
|Date of creation:||Apr 2000|
|Date of revision:|
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- Jose Campa & Linda S. Goldberg, 1995.
"Investment, Pass-Through and Exchange Rates: A Cross-Country Comparison,"
NBER Working Papers
5139, National Bureau of Economic Research, Inc.
- Campa, Jose Manuel & Goldberg, Linda S, 1999. "Investment, Pass-Through, and Exchange Rates: A Cross-Country Comparison," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(2), pages 287-314, May.
- Jose Manuel Campa & Linda S. Goldberg, 1996. "Investment, pass-through, and exchange rates: a cross-country comparison," Staff Reports 14, Federal Reserve Bank of New York.
- Campa, Jose & Goldberg, Linda, 1995. "Investment, Pass-Through and Exchange-Rates: A Cross-Country Comparison," Working Papers 95-14, C.V. Starr Center for Applied Economics, New York University.
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- Robert C. Feenstra & Jon D. Kendall, 1994. "Passthrough of Exchange Rates and Purchasing Power Parity," NBER Working Papers 4842, National Bureau of Economic Research, Inc.
- Feenstra, R.C. & Kendall, J.D., 1994. "Pass-Through of Exchange Rates and Purchasing Power Parity," Papers 1994-06, Tasmania - Department of Economics.
- Eric Fisher, 1987.
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International Finance Discussion Papers
302, Board of Governors of the Federal Reserve System (U.S.).
- Rudiger Dornbusch, 1985.
"Exchange Rates and Prices,"
NBER Working Papers
1769, National Bureau of Economic Research, Inc.
- Cristina T. Terra, 1998.
"Openness and Inflation: A New Assessment,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 113(2), pages 641-648.
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