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

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.

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 ◽

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.

Prospects of the Initiation of Inflation Targeting in RF

Voprosy Ekonomiki ◽

10.32609/0042-8736-2008-1-46-57 ◽

2008 ◽

pp. 46-57 ◽

Cited By ~ 3

Author(s):

A. Ulyukaev ◽

S. Drobyshevsky ◽

P. Trunin

Keyword(s):

Monetary Policy ◽

Exchange Rate ◽

Economic Performance ◽

Inflation Targeting ◽

Policy Regime ◽

Monetary Authorities ◽

The Exchange Rate

Bank of Russia officials have recently declared the possibility of switching to the inflation targeting regime in the medium run. The article considers benefits and shortcomings of monetary policy regime as well as the economic performance of the inflation targeting countries. The authors conclude that Russia now starts meeting conditions crucial for the success of inflation targeting. In such circumstances Russian monetary authorities have an opportunity to weaken the exchange rate goal in favor of the inflation goal.

Exchange Rate Pass-Through in Turkey before and after the Adoption of Inflation Targeting Regime

Financial Assets and Investing ◽

10.5817/fai2017-2-3 ◽

2017 ◽

Vol 8 (2) ◽

pp. 37-48 ◽

Cited By ~ 1

Author(s):

Özcan Karahan

Keyword(s):

Exchange Rate ◽

Inflation Targeting ◽

Single Equation ◽

Point Of View ◽

Turkish Economy ◽

Before And After ◽

The Exchange Rate ◽

Pass Through ◽

The impact of exchange rate change on the domestic price level which is called as exchange rate pass through has long been of interest in international economics literature. Along with the application of inflation targeting regime widely, the focus of this interest has also evolved to examine the changes in degree and speed of exchange rate pass through under inflation targeting regime. Turkey, adopted Inflation Targeting (IT) as a monetary regime between 2001 and 2006 implicitly and then explicitly, exhibits which was a genuine experience to be analyzed in this respect. From this point of view, the goal of the study is to provide a time-series analysis of exchange rate pass-through for Turkish economy based on single equation Error Correction Model estimation using the monthly data under pre-IT period 1995-2000 and post-IT period 2006-2014. Thus, we try to clarify the effectiveness of inflation targeting regime as monetary policy on the exchange rate pass-through. The findings of the study indicate that the exchange rate pass-through decreased in the post-IT period compared to pre- IT period. Accordingly, it can be argued that the implication of inflation targeting regime reduced exchange rate pass through in Turkey.

The Impact of Financial Dollarization on Inflation Targeting: Empirical Evidence from Serbia

Journal of Central Banking Theory and Practice ◽

10.1515/jcbtp-2017-0011 ◽

2017 ◽

Vol 6 (2) ◽

pp. 23-43 ◽

Cited By ~ 1

Author(s):

Nikola Fabris ◽

Nina Vujanović

Keyword(s):

Monetary Policy ◽

Exchange Rate ◽

Inflation Targeting ◽

Policy Instruments ◽

Nominal Exchange Rate ◽

Early Application ◽

Pass Through ◽

Financial Dollarization ◽

Abstract Serbia has applied inflation targeting against the backdrop of financial dollarization for almost a decade. In such circumstances, efficiency of monetary policy instruments decreases and begs the question of efficiency of the monetary regime efficiency issue. Although there is some empirical testing of financial dollarization effects on monetary policy performance in the inflation targeting regime for some countries, such studies for Serbia mostly cover periods of early application of the regime. Therefore, the authors analysed financial dollarization effects on prices, i.e. exchange rate pass-through effect using Serbia as an example. The study concludes that although unpredictable changes in financial dollarization strongly affect nominal exchange rate, prices level is subject to moderate but persistent increase upon this shock.

Monetary policy and the effect of the oil prices pass-through to inflation

Russian Journal of Economics ◽

10.32609/j.ruje.5.47349 ◽

2019 ◽

Vol 5 (3) ◽

pp. 211-219

Author(s):

Philipp Kartaev ◽

Ilya Medvedev

Keyword(s):

Monetary Policy ◽

Inflation Targeting ◽

Dynamic Models ◽

Oil Prices ◽

Oil Price ◽

Oil Price Shocks ◽

Price Shocks ◽

Policy Regime ◽

Pass Through ◽

The paper examines the impact of oil price shocks on inflation, as well as the impact of the choice of the monetary policy regime on the strength of this influence. We used dynamic models on panel data for the countries of the world for 2000–2017. It is shown that the impact of changes in oil prices on inflation is carried out predominantly through the channel of exchange rate. The paper demonstrates the influence of the transition to inflation targeting on the nature of the relationship between oil price shocks and inflation. This effect is asymmetrical: during periods of rising oil prices, inflation targeting reduces the effect of the oil prices pass-through, limiting the negative effects of shock. During periods of decline in oil prices, this monetary policy regime, in contrast, contributes to a stronger pass-through, helping to reduce inflation.

On the Exchange Rate Policy

Voprosy Ekonomiki ◽

10.32609/0042-8736-2010-1-21-28 ◽

2010 ◽

pp. 21-28

Author(s):

K. Yudaeva

Keyword(s):

Monetary Policy ◽

Exchange Rate ◽

Inflation Targeting ◽

Exchange Rate Policy ◽

Institutional Changes ◽

Crisis Period ◽

Local Currency ◽

High Inflation ◽

Rate Policy ◽

The Exchange Rate

The level of trust in the local currency in Russia is very low largely because of relatively high inflation. As a result, Bank of Russia during crisis times can not afford monetary policy loosening and has to fight devaluation expectations. To change the situation in the post-crisis period Russia needs to live through a continuous period of low inflation. Modified inflation targeting can help achieve such a result. However, it should be amended with institutional changes, particularly development of hedging instruments.

Monetary policy and the effect of the transfer of oil prices to inflation

Voprosy Ekonomiki ◽

10.32609/0042-8736-2020-8-41-50 ◽

2020 ◽

pp. 41-50

Author(s):

Ph. S. Kartaev ◽

I. D. Medvedev

Keyword(s):

Monetary Policy ◽

Inflation Targeting ◽

Dynamic Models ◽

Oil Prices ◽

Oil Price ◽

Oil Price Shocks ◽

Negative Effects ◽

Price Shocks ◽

Policy Regime ◽

The paper examines the impact of oil price shocks on inflation, as well as the impact of the choice of the monetary policy regime on the strength of this influence. We used dynamic models on panel data for the countries of the world for the period from 2000 to 2017. It is shown that mainly the impact of changes in oil prices on inflation is carried out through the channel of exchange rate. The paper demonstrates the influence of the transition to inflation targeting on the nature of the relationship between oil price shocks and inflation. This effect is asymmetrical: during periods of rising oil prices, inflation targeting reduces the effect of the transfer of oil prices, limiting negative effects of shock. During periods of decline in oil prices, this monetary policy regime, in contrast, contributes to a stronger transfer, helping to reduce inflation.

Monetary Policy and Oil Prices

Global Economy Journal ◽

10.2202/1524-5861.1730 ◽

2011 ◽

Vol 11 (3) ◽

pp. 1850232

Author(s):

Mehdi S. Monadjemi

Keyword(s):

Monetary Policy ◽

International Trade ◽

Exchange Rate ◽

Inflation Targeting ◽

Commodity Prices ◽

Oil Prices ◽

Central Banks ◽

Trade Shocks ◽

The Exchange Rate

Because of volatility, commodity prices are excluded from the CPI when inflation targeting is exercised. Rising commodity prices contribute to inflation but central banks show no reaction since the CPI does not register rise in prices. Frankel (2006) argues that monetary policy should consider the price of important export commodities such as oil, in oil exporting countries. He maintains that by doing so, central banks are able to benefit from the fluctuations of the exchange rate in the presence of a negative international trade shocks. Central banks cannot benefit from the fluctuation of the exchange rate if inflation targeting is the strategy for conducting monetary policy.

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

Review of Economics and Political Science ◽

10.1108/reps-07-2018-001 ◽

2018 ◽

Vol 3 (2) ◽

pp. 2-19 ◽

Cited By ~ 2

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 ◽

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.

The Impact of International Sanctions on Russian Financial Markets

Economies ◽

10.3390/economies8040107 ◽

2020 ◽

Vol 8 (4) ◽

pp. 107

Author(s):

Mirzosaid Sultonov

Keyword(s):

Exchange Rate ◽

Stock Price ◽

Price Index ◽

The United States ◽

The European Union ◽

Stock Price Index ◽

The Exchange Rate ◽

Long Term Impact ◽

Russia’s international comportment and geostrategic moves, particularly the invasion of Ukraine and the annexation of Crimea in 2014, caused a substantial change in its international economic and political relations. In response to Russia’s invasion, the United States of America, the European Union, and their allies imposed a series of sanctions. In this study, by applying an exponential generalized autoregressive conditional heteroscedasticity model to daily logarithmic returns of the ruble exchange rate and the closing price index of the Russian Trading System, we analyze how the returns and volatility of the exchange rate and the stock price index responded to the sanctions and oil price changes. The estimation results show that the sanctions have a significant positive short-term impact on exchange rate returns. Economic sanctions have a significant negative long-term impact on the returns and variance of the exchange rate and a significant positive long-term impact on the returns of the stock price index. Financial sanctions have a positive/negative long-term impact on the returns of the exchange rate/stock price index and a positive long-term impact on the variance of the exchange rate and the stock price index. Corporate sanctions have a positive long-term impact on exchange rate returns.