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Inflation Targeting and the Role of Exchange Rate Pass-through

  • Reginaldo P. Nogueira Jnr

    ()

The paper presents evidence on the exchange rate pass-through for a set of emerging and developed economies before and after the adoption of Inflation Targeting. We use an ARDL model for a sample of developed and emerging market economies to estimate the short-run and the long-run effects of depreciations on prices. The results support the view of the previous literature that the pass-through is higher for emerging than for developed economies, and that it has decreased after the adoption of Inflation Targeting. This reduction, however, does not mean that the pass-through is no longer existent for developed and emerging market economies, especially when it comes to the long-run. This finding highlights the importance of using dynamic models when dealing with the inflation-depreciation relationship. The results also show the important role of foreign producer costs for the imports pricing behaviour in developed economies, and of inflation stability in emerging markets.

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File URL: ftp://ftp.ukc.ac.uk/pub/ejr/RePEc/ukc/ukcedp/0602.pdf
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Paper provided by School of Economics, University of Kent in its series Studies in Economics with number 0602.

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Date of creation: Jun 2006
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Handle: RePEc:ukc:ukcedp:0602
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School of Economics, University of Kent, Canterbury, Kent, CT2 7NP

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Web page: http://www.kent.ac.uk/economics/

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