Changes In Domestic Prices Research Articles

Exchange Rate Pass-Through to Domestic Inflation in Ghana

The current study estimates the exchange rate pass-through on domestic prices from January 2013 to December 2018, using a recursive vector autoregressive model (VAR). Applying Cholesky decomposition to the model, six variables were ordered as follows: oil prices, output gap, exchange rate, import prices, overall inflation and Treasury bill rate with an assumption that the identified shocks contemporaneously impact variables which are ordered after the shock without any contemporaneous feedback. We find evidence of incomplete exchange rate pass-through to domestic prices. Thus, domestic price changes by 9.6 percent in the first three months following an exchange rate shock and the shock dies out after a year with a total pass-through effect of 10.7 percent. We also find that, exchange rate effect is more pronounced for the imported prices than the overall inflation, suggesting some moderation of pass-through effect in domestic price dynamics.

The Effect of Exchange Rates on Consumer Price Index

The consumer price index (CPI) is a crucial economic indicator of consumer price inflation, which has an attendance effect on the extent of savings and, hence, on investment capacity. The literature contains different opinions on the relationship between exchange rate and consumer price index; however, given the uniqueness of each country’s economic environment, it became apposite to focus the bearing of this paper on the South African economic context. Thus, this paper evaluates the effect of currency exchange rates on the consumer price index in South Africa. Time series data on CPI and exchange rates were drawn from the Fusion Media investment database and were analysed using the OLS regression. For the independent variables exchange rate, which is the Rand price against the Dollar, the authors applied lagg-2 given the assumption that exchange rate differences might take up to two months to affect the consumer price index. The authors’ assumption draws from the findings of eminent scholars, which indicate that, given sufficient time, changes in domestic prices would fully compensate for exchange rate adjustments. The analysis showed that exchange rate changes significantly and positively affect CPI within the data’s boundaries. The findings offer academic and practical implications for understanding the theoretical short-term period effect of the exchange rate on the consumer price index within the South African setting and for practical economic policy application for advanced policies to cushion potential negative effects on savings and investment. The paper provides an agenda for further study of the application of expanded time series to evaluate the effect of currency exchange rates on CPI over a longer period to unravel a theoretical difference between the short-term and long-term implications of exchange rates on CPI.

Price Transmission Effect of Establishing FTA with African Countries from the Perspective of Trade Facilitation

The present article introduces the price transmission effect of establishing free trade areas with African countries from the perspective of trade facilitation. Studies on China-Africa economic cooperation, tariff reduction effects, trade facilitation effects, and price transmission effects in free trade areas were reviewed. The existing literature rarely incorporates tariffs, trade facilitation, and price transmission mechanisms into the research when studying the effects of free trade areas. The present article introduces trade facilitation into the research field of China-Africa cooperation. Taking the China-Mauritius free trade area as an example, the Global Trade Analysis Project model is used to study the price transmission effect after the establishment of the China-African free trade area. Create a model and motivation for other countries to establish free trade areas with African countries. The main conclusions are as follows: China-Mauritian free trade area has improved not only the terms of trade, GDP, and social welfare of the two countries, but also other African countries. This improvement effect mainly comes from the improvement of trade facilitation, and the contribution of zero tariff policy is relatively small. The domestic price changes in many industrial sectors of the two countries showed a significant increase, while the import prices generally showed a downward trend. Therefore, countries should actively participate in the process of global economic integration, and, in the negotiation of trade liberalization, both sides should adopt differentiated negotiation strategies and improve the weak aspects of trade facilitation, respectively, to achieve a win-win situation.

Agriculture and inflation: Expected and unexpected shocks

This study assesses the inflationary role of agriculture in Brazil using procedures that measure these effects as unanticipated shocks. We focus on the effects of unexpected price shocks to three groups of commodities of the sector, understood as supply shocks, on the unanticipated changes in the IPCA, Brazil's official inflation index. Supply-side shocks related to the energy sector, the exchange rate and the international agricultural commodity prices are also considered. The theoretical basis is the hybrid New Keynesian Phillips Curve and the econometric procedures applied to the quarterly data from 2001 to 2019 are related to the analysis of autoregressive vectors – Impulse Response Functions (IRF), Forecast Error Variance Decomposition (FEVD), and Historical Decomposition of Forecast Errors (HDFE). We use two specifications: one that assumes that changes in domestic prices implicitly reflect the effects of both international dollar prices and exchange rate shocks and other which explicitly includes these two variables together with an aggregate agricultural price. The benefit of using of the two specifications is twofold: test the robustness of analytical context and examine the external components of the Brazilian inflation. The main results are: i) expected inflation, grains and diesel prices and the exchange rate stand out in explaining the variability of IPCA forecasting errors, and shocks in the IPCA itself are also relevant; ii) although of relevant magnitude, shocks to IPCA itself dissipate quickly, while supply shocks, because they are relatively large, even with small coefficients in IRF, have important impacts on inflation; iii) shocks to international prices and exchange rate affect domestic aggregate agricultural price; and iv) unanticipated supply shocks (from agriculture, energy, and exchange rate) plus inflation expectation jointly played a disinflationary role in 2018 and 2019.

Environmental innovations, income distribution, international competitiveness and environmental policies: a Kaleckian growth model with a balance of payments constraint

The article integrates a baseline Kaleckian model with a balance of payments constrained growth for addressing the interaction among: income distribution, international competitiveness and environmental innovation taking into account the proactive role of environmental policies The crucial link is given by intermediate inputs (raw materials and energy) in the Kaleckian price equation, which impacts on real wages, the wage share, the rate of capital utilization (and hence growth) and international competitiveness (through changes in domestic prices for a given international inflation rate). It is shown that an economy which has higher energy efficiency will attain at the same time a higher wage share and higher growth. Being green not only helps attain a more sustainable growth path, but also a more inclusive one both in the short run and the medium-run. In the long-run, within a balance of payments constraint, the combination of green taxes with an industrial policy aimed at increasing the energy efficiency of production and the diversification of the economy is crucial to raise the wage share and sustain growth.

Market power in distribution and pass‐through for consumers and producers

AbstractWe examine the differential pass‐through of import prices into consumer and producer prices. We develop a framework with distribution costs and distribution market power. We then examine pass‐through from import prices to consumer and producer prices in the euro area using the U.S. import price as instrument. We find that pass‐through rates to producer prices are more sensitive to changes in distribution margins than pass‐through to consumer prices. Furthermore, only a portion of import price changes translate into domestic price changes limiting potential consumer benefits from tariff liberalization, with market power in distribution services being one important factor reducing pass‐through.

Estabilidad del tipo de cambio nominal: conducción de la política cambiaria en México y apreciación cambiaria

The free-floating regime that has been enforced since December 1994 in Mexico, was portrayed as a better outcome for the economy, however the goals of the authorities were similar to the banded regime from 1991 to 1994. In fact, the Central Bank and Exchange Commission still do not permit the currency to float. Furthermore, an active monetary intervention prevents the currency from being determined by the market. Rather, the central bank and the Exchange Commission have been using the two main tools -interest rates and reserves- to influence in the exchange rate determination. These organizations are working to maintain stable exchange rates in order to fluctuations or changes in domestic prices. The foreign exchange markets in the modern era have been characterized for showing an increasing number of exchange transactions primarily for financial reasons, overcoming the volume of trade transactions. Mexico has made no exception. Given its nature as an open economy, the capital inflows have become the dominant force in setting exchange rates, and it has had a direct impact in a stronger nominal exchange rate overvaluation, placing the national economy in a high vulnerable environment.

Tipo de cambio nominal y apreciación cambiaria en México

The free-floating regime that has been enforced since December 1994 in Mexico, was portrayed as a better outcome for the economy, however the goals of the authorities were similar to the banded regime from 1991 to 1994. In fact, the Central Bank and Exchange Commission still do not permit the currency to float. Furthermore, an active monetary intervention prevents the currency from being determined by the market. Rather, the central bank and the Exchange Commission have been using the two main tools -interest rates and reserves- to influence in the exchange rate determination. These organizations are working to maintain stable exchange rates in order to fluctuations or changes in domestic prices. The foreign exchange markets in the modern era have been characterized for showing an increasing number of exchange transactions primarily for financial reasons, overcoming the volume of trade transactions. Mexico has made no exception. Given its nature as an open economy, the capital inflows have become the dominant force in setting exchange rates, and it has had a direct impact in a stronger nominal exchange rate overvaluation, placing the national economy in a high vulnerable environment.

Tariff pass-through and the distributional effects of trade liberalization

This paper estimates the distribution of welfare gains due to the trade reforms in India by simultaneously considering the effect on prices of tradable goods and wages. The cost of consumption for each household is affected by the domestic price changes, while wage incomes adjust to these price changes in equilibrium. Three rounds of the Indian Employment and Consumption Surveys are used for the analysis. The price transmission mechanisms are estimated for both rural and urban areas to understand the extent to which the trade reforms are able to affect the domestic prices. In order to assess the distributional effects, a series of nonparametric local linear regressions are estimated. The findings show that households at all per capita expenditure levels had experienced gains as a result of the trade liberalization, while the average effect was generally pro-poor and varied significantly across the per capita expenditure spectrum.

Determinantes da demanda brasileira por importação de arroz do Mercosul

Desde meados da década de 1990, o arroz é um dos principais produtos agrícolas importados pelo Brasil, principalmente do Uruguai e da Argentina, o que frequentemente gera questionamentos dos orizicultores brasileiros. O objetivo deste artigo é analisar os determinantes das importações brasileiras deste cereal, e para tanto, apresenta-se um modelo econômico visando analisar esta relação comercial no Mercosul, assumindo que as importações brasileiras de arroz são resultantes de um excesso de demanda doméstica pelo cereal. Utiliza-se um Modelo Autorregressivo Vetorial - VAR estrutural. Os resultados mostram uma forte relação do volume importado com o preço doméstico do arroz e com a taxa de câmbio. Verifica-se uma significativa participação do preço de importação na explicação do preço doméstico. A quantidade importada de arroz responde positivamente a um choque positivo no preço doméstico e negativamente a choques positivos no preço de importação e na taxa de câmbio. Verifica-se uma relação de bicausalidade entre o preço doméstico e o preço de importação de arroz. Uma das principais conclusões é que a demanda por importação reage imediatamente a choques no preço doméstico e taxa de câmbio, e posteriormente, a choques no preço de importação, sugerindo dificuldades em substituir imediatamente o volume importado no mercado doméstico.

China's impact on South African trade and inflation

There has been much controversy about the impact of Chinese growth on the rest of the world. It is generally accepted that China has a dampening effect on global inflation through the supply of cheap products. On the other hand, imports from China could displace domestic production and hence have adverse effects on economic growth and employment. Thus, the question of whether a country benefits from trading with China is a country-specific issue. The results in this paper indicate that limited short-term costs have resulted from the strengthening of trade relations between South Africa and China. As far as inflation is concerned, the paper does not find convincing empirical evidence at the aggregate level for inflation in China leading to domestic price changes. At the disaggregate level, however, there appear to be stronger sector-specific linkages between prices in China and South Africa.

Food prices, tax reforms and consumer Welfare in Tanzania 1991–2007

This paper analyses the effect of observed food price changes on household consumption (welfare) in Tanzania and from this simulates the welfare effect attributable to tax (tariffs and VAT) reforms. The three rounds of the Tanzania Household Budget Survey (1991/92, 2000/01 and 2007) are used to apply Deaton’s method based on median unit values (prices) and household budget shares. The results indicate that real price increases over 1991–2007 have reduced welfare of the average household by 20 per cent of 1991 income, and the loss was fairly evenly distributed between the 1990s and 2000s. The welfare loss was much greater for the poor, especially the rural poor (a 27 per cent reduction), compared to the non-poor (in particular the urban non-poor, who suffered a five per cent loss). Although we cannot establish explicit links between tax reforms and domestic commodity price changes, to assess the extent to which welfare changes can be explained by tax reforms we simulate the effects of tax changes on domestic price changes. The simulation shows that tax reforms (tariff reductions) offset the welfare losses for all household groups, especially in the 1990s; although the differences were small, the urban poor benefit more in relative terms from tax reforms whereas the rural poor benefit least (the effect on the non-poor was similar irrespective of location).

Exchange Rate Pass-Through To Domestic Prices: The Case of South Africa

This paper examines the exchange rate pass-through to import, producer and consumer prices in South Africa using monthly data covering the period 2000M1 to 2009M5. The study uses innovation accounting tools (impulse response and variance decomposition) within the framework of an unrestricted VAR to examine the degree of pass-through as well as the relative importance of a number of variables in explaining changes in domestic prices. The key fi ndings suggest that after 1 per cent shock to nominal effective exchange rate, the level of CPI increases by 0.125 per cent, giving a pass-through elasticity of 13 per cent. However, the pass-through elasticity of producer price is 20 per cent after 24 months suggesting that favourable shocks to producer price infl ation can have considerable moderating effect on CPI infl ation.

THE EFFECT OF EXCHANGE RATES ON INTERNATIONAL MARKETING MARGINS

This study presents a new structural model that incorporates price linkage and marketing margin identity into a common framework. The inclusion of exchange rates expands the framework to include goods traded in different currencies. This allows empirical estimates to be made of how changes in domestic prices, exchange rates and middlemen costs are transmitted to foreign prices and the international marketing margin. The framework is empirically applied to an international marketing channel using farmed salmon data, to investigate how Norwegian export prices, exchange rates and middlemen costs affect French wholesale prices and the marketing margin. Results suggest that the markets are, via complete price and exchange rate pass through, purely competitive and that the marketing margin only increases when costs of marketing service increase.

An Analysis of Latin American Peanut Trade

The U.S. export share in the world peanut market has decreased due to heavy competition. In this paper, the Latin American peanut industry is modeled using seemingly unrelated regression (SUR). Based on these estimations, a scenario analysis was conducted. The results show that the Latin American demand is not affected dramatically by either domestic or world price shocks. The effects of price changes on net trade are noticeable. However, the world price does not significantly affect the Latin American peanut supply. The results imply that Latin American peanut farmers are more sensitive to changes in domestic prices than world price changes.

A note on exchange rate pass-through in CIS countries

We assess the extent and speed of exchange rate pass-through in the countries of Commonwealth of Independent States (CIS). We do this in the framework of vector autoregressive regressions, utilising impulse functions and variance decompositions with monthly data that starts in 1999 in order to avoid the periods of very high inflation and the Russian crisis. We find that exchange rate movements have a clear impact on price developments in the CIS countries. Speed of pass-through is also fairly high, in most cases the full effect is transmitted into domestic prices in less than 12 months. Unlike in many other emerging market countries, an additional effect from US prices on to domestic prices is not significant. The extent of exchange rate pass-through is usually much higher than in our benchmark group of emerging market countries. Variance decomposition shows that the relative share of exchange rates in explaining changes in domestic prices is higher in the CIS countries than in the benchmark group. Our results indicate that policy-makers in the CIS countries need to pay more attention to exchange rate movements than in many other emerging market countries.

A Note on Exchange Rate Pass-through in CIS Countries

We assess the extent and speed of exchange rate pass-through in the countries of the Commonwealth of Independent States (CIS). We do this in the framework of vector autoregressive regressions, utilising impulse functions and variance decompositions with monthly data that starts in 1999 in order to avoid periods of very high inflation and the Russian crisis. We find that exchange rate movements have a clear impact on price developments in the CIS countries. The speed of the pass-through is also fairly high: in most cases the full effect is transmitted into domestic prices in less than 12 months. Unlike in many other emerging market economies, an additional effect from US prices on to domestic prices is not significant. The extent of the exchange rate pass-through is usually much higher than in our benchmark group of emerging market countries. Variance decomposition shows that the relative share of exchange rates in explaining changes in domestic prices is higher in the CIS countries than in the benchmark group. Our results indicate that policy-makers in the CIS countries need to pay more attention to exchange rate movements than in many other emerging market countries.

Sources of growth and output gaps in New Zealand: New methods and evidence

We extend Fox, Kohli, and Warren (2002) by using alternative techniques to re‐examine the sources of New Zealand's macroeconomic performance during the period 1983–2001. Specifically, a modified Diewert‐Morrison decomposition is used to quantify the separate contributions from productivity growth and changes in factor utilization, the terms of trade and the trade balance to GDP growth. We also use a new Fisher‐index decomposition to analyze the determinants of GDP growth. These techniques are adapted to identify sources of deviations of GDP from its trend. The results of these decompositions reveal that changes in domestic prices accounted for three‐fifths of the growth of nominal GDP over the entire sample period. Capital accumulation and employment growth were wholly responsible for the real‐output growth in this time frame. However, changes in total‐factor productivity or in the terms of trade contributed importantly to changes in real net output and in an index of aggregate welfare in specific years. Finally, no one factor was primarily responsible for explaining changes in the nominal (or real) output gap over the whole period.

Accounting for Growth and Output Gaps: Evidence from New Zealand

We evaluate New Zealand’s macroeconomic performance over the 1967–1996 period, which witnessed numerous economic reforms. Using both index–number and econometric techniques, we decompose nominal GDP growth and the output gap into contributions from price level changes, productivity growth and changes in factor utilisation. Changes in domestic prices accounted for four–fifths of the growth in nominal GDP, while capital accumulation and employment growth were the most important factors determining real–output growth. Deviations in the domestic price level around its long–run trend contributed most heavily to changes in the nominal output gap. The real gap was influenced in any year variously by deviations of the terms of trade and labour input from their long–run trends, as well as by productivity shocks.

Impact of macro-economic policies on the sugar sector of Sri Lanka

An analysis was carried out to study the effect of changes in domestic prices of sugar, sugar import, tariff rates, interest rates and exchange rates together with mill capacities, per capita incomes and world sugar prices during the post-liberalisation period on the sugar sector of Sri Lanka to suggest policy guidelines for its development. The analysis was based on a simulation model which consisted of relationships of sugarcane area, cane and sugar production and imports, consumption and price of sugar determined using data from 1978 to 1999. The results indicated that domestic price of sugar was the most important economic variable in determining sugarcane area and hence cane and sugar production, and sugar consumption. Price of sugar had a positive relationship with cane area and an inverse relationship with sugar consumption. The domestic price was mainly determined by the world price which was highly volatile. Thus need for a rational pricing policy on sugar to benefit both sugar companies and consumers was emphasized. A sugar pricing policy based on an efficiency price and a mechanism to insulate the effects of fluctuations of world price on the local price to offer a stable price to both sugar companies and consumers together with offering an incentive for improving sugarcane processing efficiencies and a component for ensuring a revenue for government was suggested.