Non-Linear Exchange Rate Pass-Through in Emerging Markets

Author/Editor:

Francesca Caselli ; Agustin Roitman

Publication Date:

January 5, 2016

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper estimates exchange rate pass-through to consumer prices in emerging markets focusing on non-linearities and asymmetries. We document non-linearities and asymmetries in the transmission of exchange rate fluctuations to prices using local projection techniques to obtain state dependent impulse responses in a panel of 28 emerging markets. We find significant evidence of non-linearities during episodes of depreciation greater than 10 and 20 percent. More specifically, we find that, after one month, the exchange rate pass-through coefficient is equal to 18 and 25 percent respectively, compared to a coefficient of 6 percent in the linear case. We also investigate the role of temporary vs. permanent shocks and the adoption of an inflation targeting regime in the transmission from exchange rate movements to prices. We perform a set of robustness checks, addressing the presence of outliers and potential endogeneity concerns.

Series:

Working Paper No. 2016/001

Subject:

Depreciation Exchange rate pass-through Exchange rates Foreign exchange Inflation Inflation targeting Monetary policy National accounts Prices

English

Publication Date:

January 5, 2016

ISBN/ISSN:

9781513578262/1018-5941

Stock No:

WPIEA2016001

Format:

Paper

Pages:

37

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