Do Credit Regimes Play a Role in the Pass-Through of the Exchange Rate Depreciation Shocks to Inflation?

2017 ◽  
pp. 397-409
Author(s):  
Eliphas Ndou ◽  
Nombulelo Gumata
Keyword(s):  
Exchange Rate ◽  
The Exchange Rate ◽  
Pass Through ◽  
Exchange Rate Depreciation

The influence of inflation targeting on the pass-through effect of the exchange rate

2018 ◽  
pp. 70-84
Author(s):  
Ph. S. Kartaev ◽  
Yu. I. Yakimova
Keyword(s):  
Developing Countries ◽  
Monetary Policy ◽  
Exchange Rate ◽  
Inflation Targeting ◽  
Policy Regime ◽  
Short And Long Term ◽  
The Exchange Rate ◽  
Pass Through ◽  
The Impact

The paper studies the impact of the transition to the inflation targeting regime on the magnitude of the pass-through effect of the exchange rate to prices. We analyze cross-country panel data on developed and developing countries. It is shown that the transition to this regime of monetary policy contributes to a significant reduction in both the short- and long-term pass-through effects. This decline is stronger in developing countries. We identify the main channels that ensure the influence of the monetary policy regime on the pass-through effect, and examine their performance. In addition, we analyze the data of time series for Russia. It was concluded that even there the transition to inflation targeting led to a decrease in the dependence of the level of inflation on fluctuations in the ruble exchange rate.

scholarly journals Exchange Rate Pass-Through to Domestic Prices: Evidence from OECD Countries

2017 ◽  
Author(s):  
Harun Bal ◽  
Mehmet Demiral ◽  
Filiz Yetiz
Keyword(s):  
Exchange Rate ◽  
Panel Data ◽  
Price Index ◽  
Oecd Countries ◽  
Domestic Prices ◽  
Macroeconomic Indicators ◽  
The Exchange Rate ◽  
Pass Through ◽  
Exchange Rate Changes ◽  
Exchange Rate Pass Through

There is an immense literature on the effects of exchange rate changes on macroeconomic indicators, specifically on the trade balance, growth, inflation, and overall productivity in open economies. One of the main attempts in the related literature is about ascertaining whether the exchange rate fluctuations alter domestic prices. This possible mechanism is called as the pass-through effect which is getting more important since the argument that exchange rate adjustment is a part of the solution for global rebalancing is empirically well-supported. Starting from this claim, this study purposes to explore whether there is an exchange rate pass-through effect in 19 high-income OECD countries over the period 1990-2015. To this end, using a panel data set of consumer price index, producer price index proxied by wholesale price index, the nominal effective exchange rates, and industrial production presented by the value-added share of industry sectors in gross domestic product, structural vector autoregressive (VAR) and autoregressive distributed lag (ARDL) models are estimated in an unbalanced panel data analysis procedure. Results reveal that exchange rate pass-through effects on the domestic prices are significant but not that strong in both the short-run and the long-run. Expectedly, the pass-through effects tend to diminish over time. The study concludes that policy-makers need to consider policy actions accompanying the exchange rate changes to ensure domestic price stability which consequently interacts with many macroeconomic indicators.

scholarly journals Exchange rate pass-through to inflation in Egypt: a structural VAR approach

2018 ◽  
Vol 3 (2) ◽  
pp. 2-19 ◽  
Author(s):  
Omneia Helmy ◽  
Mona Fayed ◽  
Kholoud Hussien
Keyword(s):  
Exchange Rate ◽  
Price Index ◽  
Structural Var ◽  
Empirical Literature ◽  
Content Type ◽  
The Exchange Rate ◽  
Exchange Rate Shocks ◽  
Pass Through ◽  
Exchange Rate Pass Through ◽  
The Impact

Purpose The theoretical and empirical literature stipulated that exchange rate shocks do influence the domestic price of imports. Hence, this paper aims to investigate the underlying relationship between the exchange rate and prices known as the exchange rate pass-through. Design/methodology/approach The paper uses a structural vector auto-regression (SVAR) model, drawing on Bernanke (1986) and Sims (1986), to empirically examine and analyze the pass-through of exchange rate fluctuations to domestic prices in Egypt. Findings The empirical results of the monthly data between 2003 and 2015 revealed that the exchange rate pass-through in Egypt is fairly substantial but incomplete and slow in the three price indices [IMP, producer price index and consumer price index (CPI)]. However, the impact is more prominent for consumer prices than for any other price index. This finding could be attributed to the fact that the CPI in Egypt is composed of a relatively large number of subsidized commodities and goods with administered prices as well as the authorities’ behavior in manipulating prices (i.e. export ban). This is expected to weaken the transmission of exchange rate shocks. Practical implications The result has interesting implications for Egypt’s ability to attain an effective inflation targeting regime. Originality/value The study contributes to the literature by assessing the effect of changes in the exchange rate (the Egyptian £ vis-à-vis the US$) on prices using an updated time series from 2003 to 2015. It addresses the limitations of the study of Nafie et al. (2004), which found no strong relationship between the exchange rate and inflation rate in the Egyptian context. One of these limitations was using the CPI, as the only price index.

Understanding the exchange rate pass-through to consumer prices in Vietnam: the SVAR approach

2019 ◽  
Vol 15 (5) ◽  
pp. 971-989 ◽  
Author(s):  
Anh The Vo ◽  
Chi Minh Ho ◽  
Duc Hong Vo
Keyword(s):  
Exchange Rate ◽  
Economic Integration ◽  
Global Financial Crisis ◽  
Global Market ◽  
Content Type ◽  
Consumer Prices ◽  
The Exchange Rate ◽  
Pass Through ◽  
Exchange Rate Pass Through ◽  
The Impact

Purpose The purpose of this paper is to examine the degree of the exchange rate pass-through (ERPT) to the consumer price index (CPI) at both aggregated and disaggregated levels in Vietnam. Updated data of the nominal effective exchange rate (NEER) and bilateral exchange rate (BiER) have been utilized in this study for the comparison purposes. Design/methodology/approach Advanced time-series approaches such as a structural vector autoregressive framework, structural impulse response functions (SIRFs), and structural forecast-error variance decomposition (SFEVD) are utilized in this paper. Findings Empirical findings from this paper present an incomplete degree of the ERPT to the aggregated CPI. The ERPT based on the BiER is observed to have substantially larger magnitude than the NEER-based pass-through. For the disaggregated level, the degree of the ERPT varies considerably across sub-components of the CPI, with a higher magnitude of the ERPT elasticity being found from the BiER estimations. The index of housing and construction materials has the largest ERPT based on the BiER, followed by the food and foodstuffs (1.00 and 0.56, respectively). The macroeconomic and financial environments as well as an economic integration into the global market may be the main causes of a higher ERPT in Vietnam in comparison with other ASEAN countries. Research limitations/implications The significant and incomplete pass-through of the exchange rate in Vietnam can affect firms’ and households’ budget planning, savings and profits. This finding generally implies that the cost of devaluation of the domestic currency affects the society as the whole in terms of welfare. The State Bank of Vietnam should carefully consider the overall effect of welfares when formulating and implementing strategies of currency devaluation. In addition, the Vietnamese economy becomes more sensitive to external vulnerabilities via changes of the exchange rate during an increasingly economic integration into the global market. In order to maintain inflation stability, it is vitally important to reduce the impact of exchange rate movements on the domestic prices, both aggregated and disaggregated levels, by pursuing either monetary policy credibility or inflation targeting. Originality/value Previous studies on the ERPT literature in the Asia region or for emerging countries focus mainly on the aggregated data of the CPI. Previous studies were conducted before the global financial crisis in 2008/2009. The current paper is the first of its kind to examine the pass-through from exchange rates to consumer prices in Vietnam using both aggregated and disaggregated data.

scholarly journals Asymmetry in Exchange Rate Pass-Through to Consumer Prices: New Perspective from Sub-Saharan African Countries

Economies ◽  
2019 ◽  
Vol 7 (1) ◽  
pp. 5
Author(s):  
Diby François Kassi ◽  
Dilesha Nawadali Rathnayake ◽  
Akadje Jean Roland Edjoukou ◽  
Yobouet Thierry Gnangoin ◽  
Pierre Axel Louembe ◽  
...  
Keyword(s):  
Exchange Rate ◽  
Exchange Rate Regimes ◽  
Short Term ◽  
Franc Zone ◽  
Consumer Prices ◽  
Cfa Franc Zone ◽  
The Exchange Rate ◽  
Sub Saharan ◽  
Pass Through ◽  
Exchange Rate Pass Through

This paper examines the asymmetrical relationship between exchange rate and consumer prices in 40 sub-Saharan African (SSA) countries from 1990Q1 to 2017Q4. We estimate the exchange rate pass-through (ERPT) to consumer prices for each country by using the nonlinear autoregressive distributed lag (NARDL) framework and dynamic panel techniques robust to cross-sectional dependence. First, our findings suggest an asymmetrical ERPT in the SSA region during the short term, whereas there are mixed results across subregions in the long term. Second, the results of the panel analysis suggest incomplete and significant ERPT to consumer prices in the entire SSA region, which is higher during depreciation of the local currency than after appreciation in the short-term, especially in the CFA Franc zone. Third, we find nonlinear ERPT with respect to the size of the exchange rate. Finally, we find that pass-through is higher in countries with fixed exchange rate regimes (CFA franc zone) in a low inflationary environment than in countries with floating exchange rate regimes and high inflation levels. Pass-through is greater during large exchange rate changes than after small changes. Therefore, the policy implication is to consider these asymmetries and nonlinearities to improve monetary policy’s credibility, enhance trade liberalization, and promote competitive market structures in the SSA region.

scholarly journals A Study on the Pass-Through Rate of the Exchange Rate on the Liquid Natural Gas (LNG) Import Price in China

2020 ◽  
Vol 8 (4) ◽  
pp. 70
Author(s):  
Chaofeng Tang ◽  
Kentaka Aruga
Keyword(s):  
Exchange Rate ◽  
Natural Gas ◽  
Exchange Rates ◽  
Import Price ◽  
Monetary Reform ◽  
Lag Effect ◽  
The Exchange Rate ◽  
Pass Through ◽  
Liquid Natural Gas ◽  
The Impact

The Chinese liquid natural gas (LNG) import price has been unstable because the stability of LNG import prices is related to changes in the exchange rates. This paper analyzes the pass-through rate of the Chinese Yuan (CNY) and Japanese Yen (JPY) on the Chinese LNG import price. The Time-Varying Parameter vector autoregressive (TVP-VAR) model is adopted to verify the pass-through rate of the exchange rates on the LNG import price using the Markov chain Monte Carlo (MCMC) method. Since September 2005, the JPY pass-through rate on the Chinese LNG import price has been decreasing while that of the CNY has been increasing. Notably, the pass-through rate of CNY began to exceed that of JPY after 2008. Moreover, since 2005, the lag effect of the CNY on the Chinese LNG import price became longer compared to JPY. If any new currency reform of the CNY is implemented in the future, then the impact of JPY on the Chinese LNG import price could be reduced and the lag effect of the CNY on the Chinese LNG import price could become longer. Therefore, the fluctuation of the CNY is becoming an important factor in understanding the movements of the Chinese LNG import price. This implies the significance of considering the effect of the exchange rate on an energy market when the market is influenced by a monetary reform of the importing country.

Sign in / Sign up

Export Citation Format

Share Document