Monetary Policies, Exchange Rate Pass-through and Prices in Asian Economies: A Long and Short-run Analysis

Abstract

Abstract T he financial crisis in 2007-2008 has turned into the most far-reaching international financial and economic crisis since the Great Depression. Indeed, the crisis-affected Asian countries experienced varying degrees of changes in the exchange rate and prices following an initial shock of sharp depreciation of their currencies in the second half of 1997. Moreover, questions connected with the exchange rate regime have been an important part of understanding macroeconomic policies and outcomes in Asia. Thus, the objective of this paper is to examine pass-through effects on domestic prices among the four selected Asian countries, Japan and S. Korea from the east and Iran and Turkey from the west, with special emphasis on an interaction between prices, monetary policies and exchange rate changes. In order to take into account dynamic effects between these variables, the structural vector auto-regression (SVAR) method is employed, by which the responses of such shocked variables are evaluated during 1970- 2015. The empirical results confirmed a dynamic relationship between exchange rate pass-through and other macro variables in the selected countries. Also, the results have shown that the pass-through shocks in the short-run are more effective in the countries which benefit from a managed floating exchange rate regime and inflation targeting policy.