Non-Linear Exchange Rate Pass-Through in Emerging Markets
IMF Working Papers, January 5, 2016
Source details
- Canonical URL
- Non-Linear Exchange Rate Pass-Through in Emerging Markets
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Bibliographic details
- Authors: Francesca Caselli, Agustin Roitman
- Published: January 5, 2016
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513578262.001
Summary
- Paper estimates exchange rate pass-through (ERPT) to consumer prices in emerging markets with focus on non-linearities and asymmetries.
- Uses local projection techniques to obtain state dependent impulse responses in a panel of 28 emerging markets.
- Investigates the role of temporary vs. permanent shocks and the adoption of an inflation targeting regime in the transmission from exchange rate movements to prices.
- Performs robustness checks addressing the presence of outliers and potential endogeneity concerns.
Key findings
- Documents non-linearities and asymmetries in the transmission of exchange rate fluctuations to prices.
- Finds significant evidence of non-linearities during episodes of depreciation greater than 10 and 20 percent.
- Reports that, after one month, the exchange rate pass-through coefficient is equal to 18 and 25 percent respectively for the >10 and >20 percent depreciation episodes, compared to a coefficient of 6 percent in the linear case.
Methodology
- Employs local projection techniques to obtain state dependent impulse responses.
- Uses a panel dataset covering 28 emerging markets.
Additional analyses and robustness
- Examines differences in transmission for temporary versus permanent shocks.
- Investigates the impact of adopting an inflation targeting regime on exchange rate pass-through.
- Conducts robustness checks for outliers and potential endogeneity concerns.
Content in this bundle
- Non-Linear Exchange Rate Pass-Through in Emerging Markets; IMF working paper WP/16/1; January 2016