Exchange rate pass-through in emerging countries: Do the inflation environment,monetary policy regime and central bank behavior matter? |
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| Institution: | 1. Department of Economics, University of Minnesota – Duluth, 1318 Kirby Dr., Duluth, MN 55812, USA;2. Department of Economics, Lehigh University, 621 Taylor Street, Rauch Business Center Room 457, Bethlehem, PA 18105, USA;1. Swiss National Bank, Borsenstr. 15 P.O. Box Ch-8022, Zurich, Switzerland;2. Mail Stop 021, Brandeis University, P.O. Box 9110, 415 South Street, Waltham, MA 02454, United States |
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| Abstract: | In this paper, we estimate the exchange rate pass-through (ERPT) to import and consumer prices for a sample of 14 emerging countries over the 1994Q1-2015Q3 period. To this end, we augment the traditional bivariate relationship between the nominal effective exchange rate and inflation by accounting for monetary stability proxied by the inflation environment, monetary policy regime and central bank behavior. We show that both the level and volatility of inflation, as well as adopting an inflation target or the transparency of monetary policy decisions clearly reduce ERPT to consumer prices. However, uncertainty about domestic monetary policy seems less relevant in explaining the pass-through to the price of imports. |
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| Keywords: | Exchange rate pass-through Inflation Emerging countries Monetary policy |
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