Non-Linear Exchange Rate Pass-Through in Emerging Markets

 
Author/Editor: Francesca G Caselli ; Agustin Roitman
 
Publication Date: January 05, 2016
 
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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. 16/1
Subject(s): Exchange rate pass-through | Foreign exchange | Inflation | Emerging markets

 
English
Publication Date: January 05, 2016
ISBN/ISSN: 9781513578262/1018-5941 Format: Paper
Stock No: WPIEA2016001 Pages: 37
Price:
US$18.00 (Academic Rate:
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