Exchange Rate Pass-Through to Domestic Prices in Pakistan
This paper assesses the extent to which the movements in exchange rate affect domestic wholesale and consumer prices in Pakistan by analyzing data from January 1988 to September 2003. The empirical model is a recursive VAR, suggested by McCarthy (2000), incorporating a distribution chain of pricing. Impulse response function and variance decomposition are used to measure the exchange rate pass-through to domestic prices. The major findings of this paper are: (1) the exchange rate movements have only a moderate effect on domestic prices, i.e., exchange rate pass-through is low; (2) the exchange rate pass-through is more stronger in wholesale price index (WPI) relative to consumers price index (CPI); (3) the impact of pass-through on domestic prices spreads over 12 months, however, the effect is mostly felt in the first four months; (4) the exchange rate pass-through to consumer prices have further weakened after the free float of Rupee/Dollar parity in July 2000; (5) within the WPI commodity groups, the exchange rate pass- through is stronger in ‘Fuel & Lighting’ and ‘Manufactures’ groups while in the case of CPI, pass-through is more pronounced in ‘Transport & Communication’ and ‘Fuel & Lighting’ group. Furthermore, the exchange rate pass-through to domestic prices is much stronger in higher inflationary environment during Jan-88 to Dec-97 relative to lower inflationary environment down the road.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- J. McCarthy, 1999. "Pass-through of exchange rates and import prices to domestic inflation in some industrialised economies," BIS Working Papers 79, Bank for International Settlements.
- Jonathan McCarthy, 2000. "Pass-through of exchange rates and import prices to domestic inflation in some industrialized economies," Staff Reports 111, Federal Reserve Bank of New York.
- Eatzaz Ahmad & Saima Ahmed Ali, 1999. "Exchange Rate and Inflation Dynamics," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 38(3), pages 235-251.
- Marco Rossi & Daniel Leigh, 2002. "Exchange Rate Pass-Through in Turkey," IMF Working Papers 02/204, International Monetary Fund.
- Campa, Jose M. & Goldberg, Linda S., 2002.
"Exchange rate pass-through into import prices: A macro or micro phenomenon?,"
IESE Research Papers
D/475, IESE Business School.
- Jose Manuel Campa & Linda S. Goldberg, 2002. "Exchange rate pass-through into import prices: a macro or micro phenomenon?," Staff Reports 149, Federal Reserve Bank of New York.
- Jose Manuel Campa & Linda S. Goldberg, 2002. "Exchange Rate Pass-Through into Import Prices: A Macro or Micro Phenomenon?," NBER Working Papers 8934, National Bureau of Economic Research, Inc.
- Feinberg, Robert M, 1989. "The Effects of Foreign Exchange Movements on U.S. Domestic Prices," The Review of Economics and Statistics, MIT Press, vol. 71(3), pages 505-11, August.
- Dalia Hakura & Ehsan U. Choudhri, 2001.
"Exchange Rate Pass-Through to Domestic Prices; Does the Inflationary Environment Matter?,"
IMF Working Papers
01/194, International Monetary Fund.
- Choudhri, Ehsan U. & Hakura, Dalia S., 2006. "Exchange rate pass-through to domestic prices: Does the inflationary environment matter?," Journal of International Money and Finance, Elsevier, vol. 25(4), pages 614-639, June.
- Choudhri, Ehsan U. & Faruqee, Hamid & Hakura, Dalia S., 2005.
"Explaining the exchange rate pass-through in different prices,"
Journal of International Economics,
Elsevier, vol. 65(2), pages 349-374, March.
- Hamid Faruqee & Dalia Hakura & Ehsan U. Choudhri, 2002. "Explaining the Exchange Rate Pass-Through in Different Prices," IMF Working Papers 02/224, International Monetary Fund.
- M. Aynul Hasan & Ashfaque H. Khan & Hafiz A. Pasha & M. Ajaz Rasheed, 1995. "What Explains the Current High Rate of Inflation in Pakistan?," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 34(4), pages 927-943.
- Goldberg, Pinelopi Koujianou, 1995. "Product Differentiation and Oligopoly in International Markets: The Case of the U.S. Automobile Industry," Econometrica, Econometric Society, vol. 63(4), pages 891-951, July.
- Ashok Bhundia, 2002. "An Empirical Investigation of Exchange Rate Pass-Through in South Africa," IMF Working Papers 02/165, International Monetary Fund.
- 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.
When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpma:0510020. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA)
If references are entirely missing, you can add them using this form.