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Emerging Floaters : Pass-Throughs and (Some) New Commodity Currencies

  • Kohlscheen, E

    (Economics Department, University of Warwick.)

In spite of early skepticism on the merits of floating exchange rate regimes in emerging markets, 8 of the 25 largest countries in this group have now had a floating exchange rate regime for more than a decade. Using parsimonious VAR specifications covering the period of floating exchange rates, this study computes the dynamics of exchange rate pass-throughs to consumer price indices. We find that pass-throughs have typically been moderate even though emerging floaters have seen considerable nominal and real exchange rate volatilities. Previous studies that set out to estimate exchange rate pass-throughs ignored changes in policy regimes, making them vulnerable to the Lucas critique. We find that, within the group of emerging floaters, estimated pass-throughs are higher for countries with greater nominal exchange rate volatilities and that trade more homogeneous goods. These findings are consistent with the pass-through model of Floden and Wilander (2006) and earlier findings by Campa and Goldberg (2005), respectively. Furthermore, we find that the Indonesian Rupiah, the Thai Baht and possibly the Mexican Peso are commodity currencies, in the sense that their real exchange rates are cointegrated with international commodity prices.

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Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 905.

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Date of creation: 2009
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Handle: RePEc:wrk:warwec:905
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  3. Emanuel Kohlscheen, 2010. "Emerging Floaters: pass-throughs and (some) new commodity currencies," Working Papers Series 224, Central Bank of Brazil, Research Department.
  4. Gita Gopinath & Oleg Itskhoki, 2010. "Frequency of Price Adjustment and Pass-Through," The Quarterly Journal of Economics, MIT Press, vol. 125(2), pages 675-727, May.
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  26. Reinhart, Carmen, 2000. "The mirage of floating exchange rates," MPRA Paper 13736, University Library of Munich, Germany.
  27. José Manuel Campa & Linda S. Goldberg, 2005. "Exchange Rate Pass-Through into Import Prices," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 679-690, November.
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  29. Joseph E. Gagnon & Jane Ihrig, 2004. "Monetary policy and exchange rate pass-through This article is a U.S. Government work and is in the public domain in the U.S.A," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 9(4), pages 315-338.
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