How Structural Macroeconomic Shocks Can Explain Exchange Rate Pass-Through in Developing Countries? A Common Trend Approach

2009 ◽  
Author(s):  
Barhoumi Karim
Keyword(s):  
Developing Countries ◽  
Exchange Rate ◽  
Macroeconomic Shocks ◽  
Common Trend ◽  
Pass Through ◽  
Exchange Rate Pass Through

How Structural Macroeconomic Shocks Can Explain Exchange Rate Pass-Through in Developing Countries: A Common Trend Approach

2009 ◽  
Vol 9 (2) ◽  
pp. 1850161 ◽  
Author(s):  
Karim Barhoumi
Keyword(s):  
Developing Countries ◽  
Exchange Rate ◽  
Traditional Approach ◽  
Macroeconomic Shocks ◽  
Structural Shocks ◽  
Long Run ◽  
The Exchange Rate ◽  
Pass Through ◽  
New Formulation ◽  
Exchange Rate Pass Through

This paper investigates the exchange rate pass-through in 12 developing countries during the period 1980-2001 by adopting a new formulation. Rather than considering the traditional approach based on the exogenous exchange rate movement through correlation between exchange rate and prices, we focus on fundamental macroeconomic shocks that affect both exchange rate and prices. In order to do that, we employ long-run restrictions à la Blanchard and Quah (1989) to identify the different shocks through an open economic macroeconomic model (ISLM framework). We use the common trends approach proposed by Warne et al (1992). This allows us to calculate the pass-through as the responses of the exchange rate, CPI and import prices to the supply, the relative demand, the nominal and the foreign prices shocks. We show that the pass-through ratio in developing countries is different when considering different structural shocks.

scholarly journals Monetary policy independence and floating exchange rates: what does the Brazilian evidence tell us?

2004 ◽  
Vol 24 (1) ◽  
pp. 30-37
Author(s):  
CARLOS EDUARDO SOARES GONÇALVES
Keyword(s):  
Developing Countries ◽  
Monetary Policy ◽  
Exchange Rate ◽  
Exchange Rates ◽  
Interest Rates ◽  
Real Interest Rates ◽  
Pass Through ◽  
Exchange Rate Pass Through ◽  
Floating Exchange Rates ◽  
Fear Of Floating

ABSTRACT Some authors have advocated that shifting from fixed exchange rates to floating regimes has not delivered better economic outcomes to developing countries. As the argument goes, pervasive fear of floating in these economies has prevented drops in real interest rates and, more importantly, has been a hindrance in the way towards more monetary policy autonomy. This paper presents evidence suggesting this may not be the case for Brazil. More precisely, there are signs that fear of floating was less acute here (presumably due to low exchange rate pass-through) than elsewhere, and also that policymakers are now targeting monetary policy principally to domestic objectives.

The influence of inflation targeting on the pass-through effect of the exchange rate

2018 ◽  
pp. 70-84
Author(s):  
Ph. S. Kartaev ◽  
Yu. I. Yakimova
Keyword(s):  
Developing Countries ◽  
Monetary Policy ◽  
Exchange Rate ◽  
Inflation Targeting ◽  
Policy Regime ◽  
Short And Long Term ◽  
The Exchange Rate ◽  
Pass Through ◽  
The Impact

The paper studies the impact of the transition to the inflation targeting regime on the magnitude of the pass-through effect of the exchange rate to prices. We analyze cross-country panel data on developed and developing countries. It is shown that the transition to this regime of monetary policy contributes to a significant reduction in both the short- and long-term pass-through effects. This decline is stronger in developing countries. We identify the main channels that ensure the influence of the monetary policy regime on the pass-through effect, and examine their performance. In addition, we analyze the data of time series for Russia. It was concluded that even there the transition to inflation targeting led to a decrease in the dependence of the level of inflation on fluctuations in the ruble exchange rate.

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