Inflation and Exchange Rate Pass-Through

The degree to which domestic prices adjust to exchange rate movements is key to understanding inflation dynamics, and hence to guiding monetary policy. However, the exchange rate pass-through to inflation varies considerably across countries and ov...

Full description

Bibliographic Details
Main Authors:	Ha, Jongrim, Stocker, M. Marc, Yilmazkuday, Hakan
Format:	Working Paper
Language:	English
Published:	World Bank, Washington, DC 2019
Subjects:	INFLATION EXCHANGE RATES MONETARY POLICY FOREIGN EXCHANGE EXCHANGE RATE PASS-THROUGH CURRENCY RATES EXTERNAL SHOCKS
Online Access:	http://documents.worldbank.org/curated/en/880231552490402888/Inflation-and-Exchange-Rate-Pass-Through http://hdl.handle.net/10986/31406

id	okr-10986-31406
recordtype	oai_dc
spelling	okr-10986-314062022-09-20T00:12:00Z Inflation and Exchange Rate Pass-Through Ha, Jongrim Stocker, M. Marc Yilmazkuday, Hakan INFLATION EXCHANGE RATES MONETARY POLICY FOREIGN EXCHANGE EXCHANGE RATE PASS-THROUGH CURRENCY RATES EXTERNAL SHOCKS The degree to which domestic prices adjust to exchange rate movements is key to understanding inflation dynamics, and hence to guiding monetary policy. However, the exchange rate pass-through to inflation varies considerably across countries and over time. By estimating structural factor-augmented vector-autoregressive models for 47 countries, this paper brings to light two fundamental factors accounting for these variations: the nature of the shock triggering currency movements and country-specific characteristics. The empirical results in this paper are three-fold. First, an empirical investigation demonstrates that different domestic and global shocks can be associated with widely different pass-through ratios. Second, country characteristics matter, including policy frameworks that govern monetary policy responses, as well as other structural features that affect an economy's sensitivity to currency fluctuations. Pass-through ratios tend to be lower in countries that combine flexible exchange rate regimes and credible inflation targets. Finally, the empirical results suggest that central bank independence can greatly facilitate the task of stabilizing inflation following large currency movements and allows fuller use of the exchange rate as a buffer against external shocks. 2019-03-14T21:18:48Z 2019-03-14T21:18:48Z 2019-03 Working Paper http://documents.worldbank.org/curated/en/880231552490402888/Inflation-and-Exchange-Rate-Pass-Through http://hdl.handle.net/10986/31406 English Policy Research Working Paper;No. 8780 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English
topic	INFLATION EXCHANGE RATES MONETARY POLICY FOREIGN EXCHANGE EXCHANGE RATE PASS-THROUGH CURRENCY RATES EXTERNAL SHOCKS
spellingShingle	INFLATION EXCHANGE RATES MONETARY POLICY FOREIGN EXCHANGE EXCHANGE RATE PASS-THROUGH CURRENCY RATES EXTERNAL SHOCKS Ha, Jongrim Stocker, M. Marc Yilmazkuday, Hakan Inflation and Exchange Rate Pass-Through
relation	Policy Research Working Paper;No. 8780
description	The degree to which domestic prices adjust to exchange rate movements is key to understanding inflation dynamics, and hence to guiding monetary policy. However, the exchange rate pass-through to inflation varies considerably across countries and over time. By estimating structural factor-augmented vector-autoregressive models for 47 countries, this paper brings to light two fundamental factors accounting for these variations: the nature of the shock triggering currency movements and country-specific characteristics. The empirical results in this paper are three-fold. First, an empirical investigation demonstrates that different domestic and global shocks can be associated with widely different pass-through ratios. Second, country characteristics matter, including policy frameworks that govern monetary policy responses, as well as other structural features that affect an economy's sensitivity to currency fluctuations. Pass-through ratios tend to be lower in countries that combine flexible exchange rate regimes and credible inflation targets. Finally, the empirical results suggest that central bank independence can greatly facilitate the task of stabilizing inflation following large currency movements and allows fuller use of the exchange rate as a buffer against external shocks.
format	Working Paper
author	Ha, Jongrim Stocker, M. Marc Yilmazkuday, Hakan
author_facet	Ha, Jongrim Stocker, M. Marc Yilmazkuday, Hakan
author_sort	Ha, Jongrim
title	Inflation and Exchange Rate Pass-Through
title_short	Inflation and Exchange Rate Pass-Through
title_full	Inflation and Exchange Rate Pass-Through
title_fullStr	Inflation and Exchange Rate Pass-Through
title_full_unstemmed	Inflation and Exchange Rate Pass-Through
title_sort	inflation and exchange rate pass-through
publisher	World Bank, Washington, DC
publishDate	2019
url	http://documents.worldbank.org/curated/en/880231552490402888/Inflation-and-Exchange-Rate-Pass-Through http://hdl.handle.net/10986/31406
_version_	1764474257388077056

Inflation and Exchange Rate Pass-Through

Similar Items