Exchange Rate Pass-through Research Articles

Dynamics of Inflation and Exchange Rate Pass-Through to Domestic Prices in Turkey

1980’li yıllardan beri popüler bir araştırma konusu olan döviz kuru geçiş etkisi hem enflasyonu öngörmek açısından önemli bir enformasyon kaynağı olmakta hem de çeşitli kanallardan enflasyonu tetiklemekte, hatta beslemektedir. Dolayısıyla, politika yapıcılar için önemli bir sinyal görevi görmektedir. Bu bağlamda Türkiye için yapılan çalışmalarda, 2001 krizinin ardından değişen kur rejimi ve para politikası stratejisinin etkisiyle geçiş etkisinin azaldığı görülse de 2016’dan itibaren kurdaki ve enflasyondaki hızlı artış döviz kuru geçiş etkisini yeniden gündeme getirmiştir. Bu nedenle bu çalışmada 2003Q1-2022Q3 döneminde, Türkiye’de döviz kuru geçiş etkisinin tahmin edilmesi amaçlanmıştır. Bulgular Enflasyon Hedeflemesine geçiş ile birlikte geçiş etkisinin de azaldığı yönündedir.

Asymmetric Exchange Rate Pass Through to Consumer Prices: Evidence from Zambia

The purpose of this study was to examine the asymmetric exchange rate pass through (ERPT) to consumer price inflation in Zambia. We examined ERPT to consumer price inflation arising from kwacha depreciation and appreciation for the period between the first quarter of 1985 to the fourth quarter of 2017. We employed the structural vector autoregressive model. The results showed that ERPT to consumer price inflation is incomplete and asymmetric. Consumer prices in Zambia are more responsive to kwacha depreciation than to appreciation. The depreciation of the kwacha has a greater significant impact on consumer prices than the appreciation of the kwacha. The impulse response function analysis showed that the shock to kwacha depreciation is very persistent than that of kwacha appreciation. Finally, the forecast error variance decomposition showed that a depreciation shock explains a bigger portion of the variance in consumer price inflation than an appreciation shock. These findings show that kwacha depreciation and appreciation have different effects on consumer price inflation, thereby confirming the presence of asymmetries in the ERPT. The study also accounted for the effect of commodity price booms in influencing ERPT. However, results of ERPT did not change much with the inclusion of commodity price booms. JEL Codes: E31, F31

Exchange Rate Pass-Through Analysis Using Industrial Import Price Indices in Taiwan

Exchange Rate Pass-Through Analysis Using Industrial Import Price Indices in Taiwan

An Analysis of the Pass-Through of Exchange Rates in Forest Product Markets

This paper assesses the exchange rate pass-through (ERPT) for forest product prices (i.e., sawnwood, logs) by applying a two-regime Self-Exciting Threshold Autoregressive (SETAR) model. We incorporate autoregressive second-order dynamics in the regime equations. This leads to better forecasts, as integrating more lags helps capture the cumulative effects of the price dynamics. We examine sawnwood and log products traded in the United States, Malaysia (Southeast Asia) and Cameroon (West Africa). Our results illustrate the importance of applying the two-regime SETAR-type models to analyze the non-linear exchange rate pass-through for forest product markets. The impulse response analysis of each price pair supports the changing behavior of price ratios in various regimes. This may be regarded as another justification to apply models accounting for structural changes to investigate the exchange rate pass-through in a non-linear fashion. The aftershock adjustment process is similar, but the amplitude of the impact differs among markets. The results reveal potential arbitrage opportunities in the forestry industry.

Revisiting the Phillips curve for Indonesia: What can we learn from regional data?

This study seeks new empirical evidence of the Phillips curve in Indonesia, an emerging and geographically diversified economy. There are three important contributions from this research. First, applying panel econometric method to exploit regional variation, the study resolves the issue of using on-target national inflation rates that potentially causes weakening inflation-output link. Second, the research examines the relevance of mining industry for output gap measurement at regional level. Third, it highlights the differences in the Phillips curve between the west and east regions owing to their different underlying economic structures. Our estimation using regional data support the validity of the Phillips curve relationship in Indonesia. Backward-looking inflation expectations, exchange rate dynamics and international prices also significantly affect inflation. In addition, the effect of output gap on inflation is larger if the mining sector is excluded from output gap measurement. Finally, we find apparent differences between the west and the eastern regions in the slope of Phillips curve, as well as in the degree of inflation persistence and exchange rate pass-through. The results are robust to alternative specification. Our study adds significantly to the empirical literature on the Phillips curve and have meaningful policy implications.

Exchange rate uncertainty and the connectedness of inflation

In this study, we examine the connectedness of exchange rate uncertainty and inflation. In an economy with a flexible exchange rate, price rigidities can lead importers to carry exchange rate risk and they impose a premium for the risk they face by increasing consumer prices. This pricing behavior provides a channel between exchange rate uncertainty and overall price level. We empirically analyze the impact of exchange rate uncertainty on inflation by using panel data from 149 countries over the period 1980–2017. The estimation results point that the uncertainty of the exchange rate has a significant and positive effect on inflation. We also show that effect of exchange rate uncertainty on inflation is nonlinear. As the exchange rate uncertainty increases, the size of its effect on inflation decreases. Moreover, the degree of exchange rate pass-through and the effect of exchange rate uncertainty on inflation differ among country groups and their effects on inflation have decreased through time.

Effect of exchange rate on inflation in the inflation targeting framework: Is the threshold level relevant?

The continuous depreciation of the exchange rate in Ghana has raised concern about its effect on inflation and the economy at large. This paper examines the threshold effect of exchange rate pass-through (ERPT) on inflation using a monthly data from January 2002 to December 2018. The relevance of the exchange rate threshold in the Taylor rule has also been examined. Using the threshold autoregressive (TAR) method, the results of the ERPT model revealed that exchange rate depreciation beyond a monthly threshold of 0.70% has a significant positive pass-through effect on inflation, which gives credence to the relevance of threshold level. The results of the monetary policy rule model also showed that regardless of the threshold level of 0.51%, the exchange rate significantly influences the monetary policy rate positively. Therefore, paying proper attention to the exchange rate in the policy rule despite the threshold (0.51%) will prevent the exchange rate depreciation from exceeding the optimal level (0.70%) and hence no ERPT on inflation. Based on these findings, it is suggested that monetary regulators should view the exchange rate at any level essential to adjust the policy rate.

Sectoral Exchange Rate Pass-through to Manufacturing Prices: A GVAR Approach

Sectoral Exchange Rate Pass-through to Manufacturing Prices: A GVAR Approach

The relationship between exchange rate volatility and inflation in Turkey

Purpose- Many studies pointing out that the exchange rate depreciations underlies of the inflation problem, which is still keep up to-date, provides empirical evidences about the existence of a direct relationship between the exchange rate and domestic prices. In addition to this phenomenon called exchange rate pass-through, we also think that exchange rate volatility can also have an impact on domestic prices. The aim of this study is to investigate the relationship between inflation and exchange rate volatility, which is characterized by the increase in risks and the creation of an environment of uncertainty in Turkish economy. Methodology- In our study, we run an augmented philips curve equation to estimate the effect of exchange rate volatility and other variables on inflation. We measure exchange rate volatility as the standard deviation and GARCH (1,1), which are frequently used in the literature. In addition, we use the time-varying parameter approach to estimate the direction in which the effect of exchange rate volatility on inflation changes over time. Findings- According to the findings, the parameters in the philips curve equation are statistically significant and reasonable in line with the economic theory. The coefficient of inflation inertia is estimated to be 0.33. This indicates that approximately one-third of a 1% increase in inflation comes from past inflation. The ERPT is calculated as 18% for the short term and 27% for the long term. The fact that the exchange rate volatility parameters are statistically significant confirms our hypothesis. Accordingly, an increase of 1 conditional standard deviation in exchange rate volatility leads to an increase in domestic prices by 0.71. We also provide evidences that the impact of both exchange rate and exchange rate volatility on inflation increases over time. Conclusion- The results show that, in addition to the exchange rate, exchange rate volatility also has a significant effect on inflation. This provides credible evidences that exchange rate uncertainty should be an additional indicator, such as the exchange rate, to achieve price stability and monetary policy goals. Keywords: Exchange rate volatility, exchange rate pass-through, inflation, time-series models, monetary policy JEL Codes: E31, C32, E52

The Effects of Domestic Currency Depreciation on Import Substitution: New Empirical Evidence from the Ukrainian Pork Industry

ABSTRACT Economic theory states that currency devaluation reduces imports. However, tradability of inputs makes the effect ambiguous. This paper aims to test the hypothesis that, when the exchange rate pass-through is higher for input than for output prices in a given sector, the depreciation of the local currency can reduce profitability and output, leading to increased imports. We found partial confirmation of this hypothesis using a structural vector autoregression model for data from the Ukrainian pork sector for 2014 to 2020. Policymakers should consider that pork production is vulnerable to a weakening currency due to high dependence on exportable feed grains.

The Role of Oil Prices in the Pass-Through of Exchange Rates to Consumer Prices: A comparative Analysis of Nigeria and South Africa

The Role of Oil Prices in the Pass-Through of Exchange Rates to Consumer Prices: A comparative Analysis of Nigeria and South Africa

Recent developments in exchange rate pass-through: What have we learned from uncertain times?

This study analyzes the influence of geopolitical uncertainty on the degree of exchange rate pass-through (ERPT) into domestic prices for a sample of advanced and emerging economies. We implement a dynamic panel threshold regression model to capture the possible presence of regime shifts in the exchange transmission. The estimation results suggest significant regime-dependence of the ERPT to geopolitical factors, which is more apparent for the sample of developed countries. Primarily, recent adverse geopolitical events seem to lead to higher rates of pass-through to both import and consumer prices. As the uncertainty surrounding the Ukrainian crisis is likely to continue, it is challenging for policymakers to prevent exchange rate changes from fueling the growing inflationary pressures.

Is pass-through of the exchange rate to restaurant and hotel prices asymmetric in the US? Role of monetary policy uncertainty

This study examines the exchange rate pass-through to the United States (US) restaurant and hotel prices by incorporating the effect of monetary policy uncertainty over the period 2001:M12 to 2019:M01. Using the nonlinear autoregressive distributed lag (NARDL) model, empirical evidence indicates asymmetric pass-through of exchange rate and monetary policy uncertainty. Moreover, a stronger pass-through effect is observed during depreciation and a negative shock in monetary policy uncertainty, corroborating asymmetric pass-through predictions. Our results further show that a positive shock in energy prices leads to an increase in restaurant and hotel prices. Furthermore, asymmetric causality indicates that a positive shock in the exchange rate causes a positive shock to restaurant and hotel prices. We found feedback causal effects between positive and negative shocks in monetary policy uncertainty and positive and negative shocks in the exchange rate. Additionally, we detected a one-way asymmetric causality, flowing from a positive (negative) shock to a positive (negative) shock in energy prices. Therefore, these findings provide insights for policymakers to achieve low and stable prices in the US restaurant and hotel industry through sound monetary policy formulations.

RMB Internationalization, FTA and Exchange Rate Pass-Through

Based on the monthly import data classified by HS code from 2008 to 2018, this paper analyzed China’s exchange rate pass-through (ERPT) and the effects of RMB internationalization on it by constructing theoretical model and econometric model. The research shows that the increase of RMB internationalization reduces China’s ERPT and stabilizes import price and reduces the risk of exchange rate fluctuations that our enterprises are exposed to significantly. In the extended analysis, it is found that the signing of Free Trade Agreements further strengthens the impact of RMB internationalization on exchange rate pass-through, means two strategies of RMB internationalization and FTA can promote each other.

Exchange rate pass-through in the USA and Canada

Exchange rate pass-through in the USA and Canada

Make-up Strategies and Exchange Rate Pass-through in a Low-Interest-Rate Environment

Make-up Strategies and Exchange Rate Pass-through in a Low-Interest-Rate Environment

Exchange rate pass-through in the USA and Canada

Exchange rate pass-through in the USA and Canada

Buyer Market Power and Exchange Rate Pass-through

Buyer Market Power and Exchange Rate Pass-through

Exchange Rate Pass-Through to Domestic Inflation in Ghana

Exchange Rate Pass-Through to Domestic Inflation in Ghana

Simple Rules of the Monetary Policy and Incomplete Exchange Rate Pass-Through

Simple Rules of the Monetary Policy and Incomplete Exchange Rate Pass-Through