Pass-through Effect Research Articles

ПОВОЄННЕ ТАРГЕТУВАННЯ ІНФЛЯЦІЇ: КЛЮЧОВІ ВИКЛИКИ

На період воєнного стану НБУ призупинив таргетування інфляції, але анонсував повернення до нього в найближчий час з усіх можливих моментів. Повоєнна нормалізація монетарної політики в Україні є історично безпрецедентною, оскільки більшість відомих випадків стосується перезапуску грошового обігу і налагодження банківської діяльності, створення центробанку як інституції, що покликана елімінувати макроекономічні передумови внутрішньокраїнних конфліктів. Водночас воєнні конфлікти характеризуються емісійним фінансуванням бюджету, сплеском інфляції і посиленням доларизації, а сеньйораж може бути оптимальною формою компенсації раптової втрати податкових надходжень виключно в обмежених обсягах. Відновлення інфляційного таргетування в Україні наражатиметься на ряд загальних макроекономічних викликів у вигляді: прискорення інфляції, затримки коригування компонентів небазової інфляції, невизначеності щодо обсягів емісійного фінансування дефіциту після припинення воєнного стану; деградації монетарної трансмісії; погіршення інфляційних очікувань та імовірного посилення ефектів перенесення. Однак дані виклики, радше, впливатимуть на таймінг повернення до таргетування інфляції. З технічної точки зору цей процес наражатиметься на проблеми, пов’язані: із специфікацією інфляційної цілі (новий «похилий» коридор, актуалізація старої цілі в різних формах); імовірним оптимальним зниженням її рівня через євроінтеграцію; погіршенням критеріальних значень ВВП-розриву і рівня нейтральної ставки при оцінюванні стану монетарної політики; поновленням процесу нагромадження валютних резервів з відповідним продовженням тенденції до підтримки структурного профіциту ліквідності. Незалежність НБУ відіграватиме ключову роль для нейтралізації проблеми довіри в умовах потенційної альтернативності між швидкістю стабілізації інфляції і акселерацією темпів економічного відновлення.

Determining the Relationships Between Domestic Credits, Economic Growth and Inflation in Turkiye by Nonlinear Cointegration Analysis

The aim of this study is to determine the relationship between GDP and inflation and domestic
 loans given by banks to the private sector by using time series models. In this study, in which the
 1972-2020 annual data for Turkiye were used, Harvey et al. (2008) Harvey and Leybourne (2007)
 linearity tests, traditional unit root tests for linearly determined series and Kapetanios, Shin and Snell
 (2003) (KSS) unit root tests for nonlinear series were performed. After the series were determined to
 be stationary, Kapetanios, Shin and Snell (KSS) (2006) cointegration test was performed. According to
 the results of the analysis, no cointegrated relationship was found between the GDP and inflation and
 domestic loans given by banks to the private sector in Turkiye. As a result, it can be said that there is
 no pass-through effect on GDP and inflation rates as a result of the increase/decrease in loans given
 by banks to the private sector in Turkiye.

Impact of oil price and oil production on inflation in the CEMAC

There are different channels through which variations in international crude oil prices translate into changes in net-oil exporting countries' domestic prices. This article identifies two of these causal mechanisms, namely the pass-through effect and the Dutch disease effect. It intends to disentangle these two effects in the five oil producers of the Central African Economic and Monetary Community: Cameroon, the Republic of Congo, Chad, Equatorial Guinea, and Gabon. It also investigates the heterogeneity across countries in the face of international oil price and domestic oil production shocks based on a multiple time-series strategy covering the period 1995–2019. Applying Dynamic Ordinary Least Squares and Autoregressive Distributed Lag models, it concludes to the presence of a pass-through effect in Cameroon, Chad, and the Republic of Congo and of a Dutch disease effect in Equatorial Guinea. This contributes to the understanding of the relationships between international commodity prices and domestic consumer price variations but can also help policymakers in the CEMAC by assessing the vulnerability of its members toward external shocks.

Dynamic spillovers between U.S. climate policy uncertainty and global foreign exchange markets: the pass-through effect of crude oil prices.

This study aims to investigate the time-varying spillover effects of the U.S. climate policy uncertainty (U.S. CPU) shock on crude oil prices and exchange rates by utilizing the DCC-GARCH connectedness approach. The results show that U.S.CPU is the largest net transmitter, followed by the crude oil price. Our outcomes also indicate that the Italian currency is the main net recipient and further reveal the pass-through effect of crude oil prices between U.S. CPU and exchange rates.

Economic policy uncertainty and price pass-through effect of exchange rate in China

Using the Chinese economic policy uncertainty (EPU) index, this paper investigates the spillover effect on the price pass-through effect of the RMB exchange rate and uncertainty, using the time-varying parameter vector autoregressive (TVP-VAR) model. We find that EPU has a significant effect on the price pass-through effect of the RMB exchange rate, which indicates that an increase in uncertainty will significantly enhance the price pass-through effect of the exchange rate. In addition, EPU itself can have a significant spillover effect on the exchange rate. Finally, the price pass-through effect of the RMB exchange rate is incomplete, and its impact on the price level gradually decreases along the circulation chain. The Chinese government should pay close attention to the impact of economic policy uncertainty on the price pass-through effect of the RMB exchange rate and the exchange rate and further strengthen the risk prevention and early warning mechanism to minimize the impact of uncertainty on China's macroeconomy.

Exchange Rate Pass-Through Effect on the Price of Imported Medical Goods in Iran: A Nonlinear Autoregressive Distributed Lag (NARDL) Approach

Exchange Rate Pass-Through Effect on the Price of Imported Medical Goods in Iran: A Nonlinear Autoregressive Distributed Lag (NARDL) Approach

Impact of countries’ role on trade prices from a nickel chain perspective: Based on complex network and panel regression analysis

Recently the large fluctuation of nickel futures price makes the nickel trade price become the focus of policymakers' attention. Affected by resource endowment and resource demand, the trade role of a country affects its pricing power in the international market. The impact is across the whole industry chain. Using the panel regression model and complex network model, this paper analyses the evolution trend of trade position for countries participating in nickel product trade from 2000 to 2019 from the perspective of the industry chain, and examines the impact of changes in the country's trade role on its trade prices. Finally, the pricing power of typical countries is quantified and visualized. The study found: (i) The trade market of nickel products shows a prosperous trend and the Asian factors play an important role. (ii) The trade role of the country has a significant cross-influence on trade prices in all links of the industrial chain. (iii) The trading role of the state in the upstream nickel ore and the downstream stainless steel affect the trade price of the whole industry chain through the pass-through effect of prices in the industry chain. (iv) China, the United States, India, and the industrialized nations of Europe already have terms of trade that affect prices. This research will help governments understand the role of the country in the trade of nickel products and the impact on market prices. In addition, it also provides theoretical support for policymakers to formulate trade policies and strategies.

Spillover impact of the U.S. monetary policy shock on China's economy: capital flow channel

This study builds an open economy theoretical model with financial frictions to analyse the spillover impact of the U.S. monetary policy shock on China’s economy through capital flow channel. Bayesian technique is employed to estimate the TVP-VAR model and obtain three main results. First, the increase in the U.S. nominal interest rate causes the decline in China's capital inflow, which has a negative spillover impact on China’s economy and leads to the decline in China’s real output. Second, this negative spillover impact on China's economy has no structural time-varying characteristics. Third, the pass-through effect from international capital flow to China's real output is greater than that of international capital flow itself.

Analyse et prospective de la réponse de politique en RD Congo face à l’incertitude de la Covid-19

The Covid-19 shock has maken the uncertainty more acute. That uncertainty has seriously dysfunctioning the Congolese economy and influenced the implementation of the monetary policy. Using the “Minnesota Prior Bayesian VAR model”, we are estimating the Covid-19 uncertainty shock on the economy and monetary policy response. The effect of Covid-19 uncertainty strikes unprecedented aggregate demand and the economy. In addition, it undermines the action of monetary policy to soften this fall in aggregate demand and curb inflation impacted by pass-through effect. However, the shock of monetary policy via an appropriate control of monetary base seems comfortable to mitigate this crisis. We suggest a consistency of the policy mix and the careful development of unconventional monetary policy framework to hope for a recovery and to ensure confidence.

EXCHANGE RATE THE PASS THROUGH EFFECT IN BRICS-T COUNTRIES: PANEL COINTEGRATION TEST

Enflasyon oranı ve döviz kuru değişkenleri en önemli makro ekonomik unsurlar arasındadır. Bu iki değişkenin birbiri üzerindeki etkisi literatürde sıklıkla incelenmektedir. Bu çalışmada BRICS-T (Brezilya, Rusya, Hindistan, Çin, Güney Afrika ve Türkiye) ülkelerindeki enflasyon ve döviz kuru ilişkisini sınamak amacıyla 2000-2020 dönemine ait enflasyon ve döviz kuru değişkenlerinin verileri yıllık olarak ele alınmıştır. Birinci nesil birim kök testleri içerisinde yer alan ve literatürde sıklıkla kullanılan panel LLC birim kök testi panel IPS birim kök testleri uygulanmıştır. Enflasyon oranı ve döviz kuru değişkenlerinin uzun dönemli ilişkisi Pedroni ve Kao eşbütünleşme analizleri ile ortaya koyularak değişkenler arasında eşbütünleşme ilişkisinin olduğu yönünde bulguya ulaşılmıştır. Bu aşamadan sonra panel veri analizlerinde kullanılan uzun dönem katsayı tahmincilerinden DOLS ve FMOLS yöntemleri ile katsayı tahmini yapılmıştır. FMOLS sonucuna göre; BRICS-T ülkelerinde döviz kurundaki %1’lik artış enflasyon oranını yaklaşık olarak %0.28 artırmaktadır. DOLS sonucuna göre; BRICS-T ülkelerinde döviz kurundaki %1’lik artış enflasyon oranını yaklaşık olarak %0.23 artırmaktadır. Söz konusu dönemde BRICS-T ülkelerinde döviz kurundaki geçiş etkisinin sırasıyla %0.28 ve %0.23 oranında gerçekleştiği sonucuna ulaşılmaktadır.

Effects of exchange rate pass-through on inflation in Vietnam

The main purpose of this study is to investigate the effect of exchange rate pass-through (ERPT) on domestic price of goods and services in Vietnam under the impact of the interest rate and refinancing rate over the period 2014 to 2019. Unit root test and many Diagnostic tests are conducted before applying the Vector Auto Regressive (VAR) model. Estimation results indicate that exchange rate changes have a positive impact on domestic consumer price level means that an increase in the depreciation of Vietnam dong could cause an increase in domestic price, the degree of ERPT into domestic price level is smaller than interest rate and refinancing one. The study also indicates many problems existing in the actual situation in Vietnam. From those analysis results, the study has proposed monetary policy orientations to help stabilize prices and develop macroeconomics.

Analysis of Macroeconomic Variables Affecting Inflation and Exchange Rates

This study aims to examine the movement of macroeconomic variables, especially inflation and exchange rates. Inflation affects the exchange rate through the Law of One Price and Purchasing Power Parity, while the exchange rate affects inflation through the Exchange Rate Pass-Through Effect. This study also aims to examine the effect of other macroeconomic factors on inflation and exchange rates. The variables studied and suspected of influencing inflation are interest rates, money supply, exports, imports, government spending, unemployment, and exchange rates. While the variables studied and suspected of influencing the exchange rate are the difference in interest rates between domestic and foreign interest rates, trade balance, public debt, inflation and exchange rates MYR/USD, THB/USD, PHP/USD, SGD/USD. The research period is from 2004-2017. The research method used is the Two-Staged Least Square model. The results found that there was no simultaneity between inflation and the exchange rate after adding the control variable. Significant factors that partially affect inflation are exports, imports, government spending, unemployment, and the rupiah exchange rate. Meanwhile, interest rates and money supply partially have no significant effect. In terms of the IDR exchange rate, significant factors that partially affect IDR are the difference in interest rates between Indonesia and the US, government debt, trade balance, MYR, THB, and SGD. Meanwhile, PHP and inflation have no significant effect on the IDR.

Exchange rate pass-through to domestic inflation in a pricing model incorporating distribution chain structure

ABSTRACT This study investigates the pass-through of exchange rate shocks to different aggregate prices in China. The baseline analysis is carried out with vector autoregressive models incorporating a distribution chain of pricing, and various modifications are examined for robustness. The central results show an appreciation of the local currency tends to suppress domestic inflation at the early production stages, although the pass-through effect only amounts to a moderate degree for consumer prices. As the contribution of external factors to the persistently low inflation environment mostly has been modest, the paper suggests that the monetary authority can contribute to the permanent component of low exchange rate pass-through to domestic inflation, by continually conducting a credible and efficient stable-inflation policy.

Exchange Rate Volatility, Inflation and Economic Growth in Developing Countries: Panel Data Approach for SADC

In the Southern African Development Community, the relationships between exchange rate instability, inflation and economic growth remain at the forefront of economic debate because of the historical antecedent and economic clustering of member countries. Nonetheless, much is not known regarding the complexity, complementarity or substitutability of exchange rate instability and inflation on economic growth for SADC countries. This article examined the influence of exchange rate instability on the inflation–growth nexus of the region for the period of 2000 to 2018. Three major techniques of analyses, Pooled Mean Group (PMG), Generalised Moments (GM) and Dynamic Fixed Effect (DFE), were employed in achieving the goal of the study, but the Pooled Mean Group estimator of the Panel Autoregressive Distributed Lag was favoured by the Hausman test as the main instrument. The GARCH (1, 1) was also employed to generate exchange rate instability. The findings of the study showed that exchange rate instability and inflation have a negative relationship with economic growth of the region. Results further show evidence that economic growth of the region is adversely influenced by the consequential effect of exchange rate instability on inflation: the higher the level of instability in exchange rate, the worse the inflationary-growth relationship of the region. This confirms the menu cost theory of price setting: the higher the rate of inflation, the quicker the exchange rate pass-through effect. It is therefore recommended that policies to ensure appreciation of local currencies should be the priority of member nations.

Asymmetrical Effects of Real Exchange Rate Volatility during Covid-19 Pandemic on the Demand for Money in Zimbabwe

The understanding of symmetrical or asymmetrical effects of exchange rate volatility improves the effectiveness of macroeconomic management policies. This study examines the long-run asymmetrical effects of exchange rate volatility on real demand for money in Zimbabwe, using monthly data from January 2018 to September 2020. Exchange rate shocks are calculated by decomposing exchange rate volatility measure into positive and negative components to examine their short-run and long-run effects and to determine whether the long-run effects of the components of exchange rate movements are symmetrical or asymmetrical. The linear ARDL and the non-linear ARDL models are estimated. The study employs the F-bounds test to confirm the longrun relationship and the Wald test for the asymmetrical effect. The results show that exchange rate depreciation in Zimbabwe has symmetrical effects on real demand for money. Thus, exchange rate policies in Zimbabwe should assume linearity in the passthrough effects on real demand for money.
 JEL Classification: E41; E52; E6

On the dynamic price pass-through effect of commodities to CPI constituents

On the dynamic price pass-through effect of commodities to CPI constituents

Exchange rate pass-through and its heterogeneity under the pegged regime: a case of Vietnam

This paper analyses the exchange rate pass-through effects (ERPT) into consumer prices in Vietnam with a pegged regime during 2001–2019 using a structural vector autoregressive approach. The model is identified based on the fit of data rather than a priori theorizing. Firstly, we find that the degree of ERPT in the country is higher than that in other emerging and developed economies. High and volatile inflation, a high degree of openness, and exchange rate regime are essential factors that explain the difference. Besides, we show that ERPT is positively correlated with the level and the volatility of inflation across sectors. Since the results are derived from a single country, the heterogeneity is more likely to be attributable to industry-specific rather than macro factors.

The Road of Federal Infrastructure Spending Passes Through the States

Because federal infrastructure spending largely takes the form of grants to state governments, the macroeconomic impact of such packages depends on the share of federal grants that “passes through” to actual infrastructure spending done by states. A low degree of pass-through would tend to mute the economic impact from federal grants, reflecting a crowd-out effect on state spending. We first revisit Knight’s (2002) influential finding of near-zero pass-through (perfect crowd out) of federal highway grants. That result is found to be specification-sensitive and is reversed completely in a longer sample, with estimates implying dollar-for-dollar pass-through of grants to spending. We then extend the analysis to allow for dynamics. We find a contemporaneous pass-through effect of about 1 and a longer-run cumulative effect of around 1.3. In the parlance of public finance, the flypaper effect is strong.

Monetary policy effectiveness in Africa: the role of financial development and institutional quality

PurposeThis study aims to provide empirical evidence of the pass-through effect of monetary policy on bank lending rates vis-à-vis the potential moderating effects of financial sector development and institutional quality in Africa.Design/methodology/approachThe study uses robust fixed effects panel data estimation techniques and data from 1990 to 2017 across 37 countries in Africa.FindingsThe results show that financial development aids in the effectiveness of monetary policy transmission. A decomposition of financial development into financial institution development and financial market development shows that financial institutional development is more influential with regard to effectiveness of the interest rate pass-through compared to financial market development. This study again shows that improvements in the quality of institutions reduced lending rates in African economies.Practical implicationsThe findings present relevant policy implications regarding effective transmission of monetary policy, by linking the pursuit of institutional quality, characterized by the control of corruption, political stability, regulatory quality, rule of law and the voice of accountability and development of financial institutions with lending rates and ultimately the demand for growth capital.Originality/valueThis study contributes to the literature on the factors influencing the effectiveness of monetary policy. This study considers financial sector development and institutional quality as conduits to monetary policy effectiveness in developing African countries.

The asymmetric effects of the current account balance on inflation

Purpose: We aim to highlight the asymmetric relationship between the current account balance and inflation via the nonlinear boundary test approach for the period 2002:01-2020:10. We analyze the Turkish economy because Turkey has started implementing a new economic policy, which mainly aims to control inflation by maintaining a current account surplus. As a result, the primary purpose of this research is to determine the influence of the current account balance on local inflation, as well as to assist in the formulation of appropriate economic policies to minimize any negative effects on the local economy. Methodology: The nonlinear boundary test approach (NARDL) is used for the 2002:01-2021:10 data period due to the possibility of long-term nonlinear relations between the inflation rate and the current account balance. Results: According to the analysis findings, there is a long-term cointegration relationship between variables. It is deduced that while there exists long-term asymmetry between the current account balance and inflation, the coefficients themselves are not statistically significant, and magnitudes are negligible. However, the effect of dollarization and the lagged values of the CPI on current inflation are statistically significant and substantial, which underpins the importance of inflation inertia, inflation expectations, and the pass-through effect. Conclusion: With a view to stabilizing inflation, policymakers should prevent dollarization by taking the necessary measures.