Exchange rate pass-through: an analysis of a panel quantile regression

The purpose of this study is to examine the degree of exchange rate pass-through (ERPT) with the focus on Taylor (2000)’s hypothesis that asserts ERPT tends to be high (low) in high (low) inflation states. To this end, a panel quantile regression is applied to the data from 37 countries over the period of 1996-2018. The panel quantile regression allows us to capture the distributional heterogeneity in the ERPT coefficient and thus to directly address the question of whether the ERPT degree depends on the inflationary environment. The results indicate that ERPT is low (high) at low (high) quantiles of the inflation rate, supporting Taylor’s hypothesis. Keywords: Exchange rate pass-through, Taylor’s Hypothesis, Panel Quantile RegressionJEL Codes: C13, E31, F31

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An empirical study of exchange rate pass-through in China

Panoeconomicus ◽

10.2298/pan1202135j ◽

2012 ◽

Vol 59 (2) ◽

pp. 135-156 ◽

Cited By ~ 4

Author(s):

Xiaowen Jin

Keyword(s):

Exchange Rate ◽

Linear Model ◽

Inflation Rate ◽

Exchange Rate Regime ◽

Flexible Exchange Rate ◽

Exchange Rate Policy ◽

Chinese Government ◽

Long Run ◽

Pass Through ◽

Exchange Rate Pass Through

This paper seeks to estimate exchange rate pass-through in China and investigate its relationship with monetary policy. Linear and VAR models are applied to analyze robustness. The linear model shows that, over the long run, a 1% appreciation of NEER causes a decline in the CPI inflation rate of 0.132% and PPI inflation rate of 0.495%. The VAR model supports the results of the linear model, suggesting a fairly low CPI pass-through and relatively higher PPI pass-through. Furthermore, this paper finds that, with the fixed exchange rate regime, CPI pass-through remains higher. The exchange rate regimes influence on CPI pass through, combined with the fact that appreciation diminishes inflation, suggests that the Chinese government could pursue a more flexible exchange rate policy. In addition, reasons for low exchange rate pass-through for CPI are analyzed. The analysis considers price control, basket and weight of Chinese price indices, distribution cost, and imported and non-tradable share of inputs.

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Analysis of nominal exchange rate pass-through effect on inflation rate in selected countries

Bankarstvo ◽

10.5937/bankarstvo2103008z ◽

2021 ◽

Vol 50 (3) ◽

pp. 8-35

Author(s):

Aleksandra Živković

Keyword(s):

Monetary Policy ◽

Exchange Rate ◽

Inflation Targeting ◽

Inflation Rate ◽

Developed Countries ◽

Nominal Exchange Rate ◽

Policy Regime ◽

Pass Through ◽

Exchange Rate Pass Through ◽

The Impact

Inflation rate is one of the essential macroeconomics variables and it represents the main goal of monetary policy. It is determined by a great number of factors, so it is necessary to analyse the impact their changes have on inflation rate. The purpose of this research is the analysis of the nominal exchange rate pass-through effect on inflation rate in selected emerging and developed countries in the period 2014-2020, which share the same characteristics of inflation targeting, as main monetary policy regime, and managed floating exchange rate, as exchange rate type. Inverse proportion between volatility of nominal exchange rate and inflation rate is proven (depreciation of nominal exchange rate of national currency leads towards the growth of inflation rate), as well as higher pass-through effect in emerging countries compared to developed countries.

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