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The purpose of this paper is to examine the role of fiscal discipline on the dynamics of exchange rate pass-through during inflation targeting. The present study analyses the Turkish economy for the period 2006–2022 by the use of threshold regression models. Our results suggest that fiscal discipline, measured by the IMF-defined primary budget balance as a share of GDP (which excludes the one-off government revenues balance such as privatization, interest earnings, and real estate sales) has a significant role in inflation dynamics. The degree of exchange rate pass-through is significantly lower and thus raises the effectiveness of inflation targeting when the government ensues strict fiscal discipline. [ABSTRACT FROM AUTHOR]

Greater participation in global value chains (GVCs) has highlighted the impact of exchange rate shocks on international trade. This paper examines how such participation influences firms' responses to exchange rate movements, focusing on the relationship between firms' pricing and value‐added in exports. This study, using detailed Chinese firm‐level data, demonstrates that firms with a high degree of GVC participation reacted to currency appreciation by lowering their export prices more substantially and reducing their export volumes less. This is mainly attributable to the "cost‐hedging effect" within the marginal cost channel and the "pricing inhibition effect" within the markup channel. By categorizing export firms by trade models and product types, this study further demonstrates that processing trade firms at the low end of the value chain and those with low product differentiation were more inclined to absorb exchange rate shocks. This study adds to the existing theoretical framework and provides strong evidence for China in deepening GVC integration and supporting the development of high‐quality export firms. [ABSTRACT FROM AUTHOR]

Exchange rate pass-through (ERPT) represents a degree to which changes in nominal exchange rates are transmitted into domestic prices. European Union (EU) countries have experienced the unprecedented inflationary pressure due to high geopolitical risk events. As such, understanding the ERPT plays a crucial role. This study provides a comprehensive and up-to-date analysis of ERPT to import prices for 16 EU countries from January 2006 to December 2022. Using the panel autoregressive distributed lag (ARDL) model, our findings confirm the linear, rather than nonlinear, ERPT pattern characterized by a diminishing trend over time in the EU countries. However, the degree of pass-through varies depending on country characteristics. Specifically, countries that are highly dependent on imports experience a larger ERPT. Furthermore, the degree of pass-through to import prices is more significant and persistent during periods of high uncertainty. These findings are robust across various robust analyses including sub periods. Our findings provide that help policymakers evaluate the trade-offs between exchange rate risks and macroeconomic stability during times of high uncertainty. [ABSTRACT FROM AUTHOR]

Purpose: This study examines the importance of exchange rate and credit growth fluctuations when designing monetary policy in Thailand. To this end, the authors construct a small open economy New Keynesian dynamic stochastic general equilibrium (DSGE) model. The model encompasses several essential characteristics, including incomplete financial markets, incomplete exchange rate pass-through, deviations from the law of one price and a banking sector. The authors consider generalized Taylor rules, in which policymakers adjust policy rates in response to output, inflation, credit growth and exchange rate fluctuations. The marginal likelihoods are then employed to investigate whether the central bank responds to fluctuations in the exchange rate and credit growth. Design/methodology/approach: This study constructs a small open economy DSGE model and then estimates the model using Bayesian methods. Findings: The authors demonstrate that the monetary authority does target exchange rates, whereas there is no evidence in favor of incorporating credit growth into the policy rules. These findings survive various robustness checks. Furthermore, the authors demonstrate that domestic shocks contribute significantly to domestic business cycles. Although the terms of trade shock plays a minor role in business cycles, it explains the most significant proportion of exchange rate fluctuations, followed by the country risk premium shock. Originality/value: This study is the first attempt at exploring the relevance of exchange rate and credit growth fluctuations when designing monetary policy in Thailand. [ABSTRACT FROM AUTHOR]

This article estimates the pass‐through of different shocks into different U.S. prices that are important for policy makers. The investigation is based on a structural vector autoregression model, where quarterly data are used. The empirical results depict oil price pass‐through, exchange rate pass‐through, import‐price pass‐through, and producer price pass‐through into import prices, producer prices, and consumer prices for the U.S. economy. Policy implications suggest that achieving and sustaining consumer price stability highly depend on monitoring the developments in oil prices, followed by import prices and producer prices. [ABSTRACT FROM AUTHOR]

This study makes an attempt to examine the exchange rate pass-through (ERPT) to domestic prices in India from 1993M4 to 2021M3. In the empirical literature, the relationship between the exchange rate and the price was found to be linear. However, in emerging economies recently the asymmetric relationship between these variables is noticed: the effect of appreciation on price is found to be negligible while the effect of depreciation is found to be significant. To study this behaviour, we have used non-linear autoregressive distributed lag (NARDL) model by employing five variables (viz., exchange rate, consumer price, output gap, money supply and oil prices). The structural break techniques are used to examine the differential effects of the pass-through. It found that exchange rate shocks do not lead to significant changes in consumer prices in the long run. In terms of policy, this means that the ERPT has insignificant consequences for monetary policy, and depreciation might pose a little threat to price stability. It is also established that oil price shocks are not one of the major determinants of inflation in the country and they do not pose serious challenges to price stability. Economic growth and monetary expansion also do not seem to pose any risks to price stability in the long run. JEL Classification: E31, E37, E52, F31 [ABSTRACT FROM AUTHOR]

Purpose: The article aims to establish whether the degree of aversion to inflation and the responsiveness to deviations from potential output have changed over time. Design/methodology/approach: This paper assesses time variation in monetary policy rules by applying a time-varying parameter generalised methods of moments (TVP-GMM) framework. Findings: Using monthly data until December 2022 for five inflation targeting countries (the UK, Canada, Australia, New Zealand, Sweden) and five countries with alternative monetary regimes (the US, Japan, Denmark, the Euro Area, Switzerland), we find that monetary policy has become more averse to inflation and more responsive to the output gap in both sets of countries over time. In particular, there has been a clear shift in inflation targeting countries towards a more hawkish stance on inflation since the adoption of this regime and a greater response to both inflation and the output gap in most countries after the global financial crisis, which indicates a stronger reliance on monetary rules to stabilise the economy in recent years. It also appears that inflation targeting countries pay greater attention to the exchange rate pass-through channel when setting interest rates. Finally, monetary surprises do not seem to be an important determinant of the evolution over time of the Taylor rule parameters, which suggests a high degree of monetary policy transparency in the countries under examination. Originality/value: It provides new evidence on changes over time in monetary policy rules. [ABSTRACT FROM AUTHOR]

Exchange rate fluctuations have far-reaching consequences for national economies, companies and, above all, consumers. It is therefore important to understand the mechanisms by which these fluctuations affect food prices in domestic markets. In this context, we examine the complex relationship between exchange rates and domestic food prices and attempt to calculate the pass-through effect of the exchange rate on domestic prices. To examine the pass-through effect of the exchange rate on food prices, we use monthly USD/TRY exchange rate data from January 2003 to July 2023 as well as the global food price index, the export-import rate for food and the producer price index for food in Türkiye. We employ the vector autoregression (VAR) method to determine the optimal lags of the variables included in the analysis and the artificial neural network (ANN) algorithm to calculate the overall pass-through effect of the USD/TRY exchange rate on domestic food prices. The results show that the pass-through effect of the variable on food prices persists for three months: the current month, the previous month and the two previous months. The total pass-through effect of the exchange rate on food prices reaches up to 27%. Half of this impact comes from the previous month's food prices. In addition, the ratio of food exports to imports accounts for about 12% of the increase in domestic food prices. The results also show that the variable with the highest pass-through effect is the producer price index and that 90% of the increase in food prices is due to domestic dynamics, while the effect of price increases in foreign markets is only about 10%. [ABSTRACT FROM AUTHOR]

The objective of this article is twofold. The first goal is to comprehend the effect of changes in the exchange rate on prices using a neo-structuralist approach. Our theoretical model showed that the greater the share of imported inputs in costs, the more powerful the pass-through. Furthermore, considering the structuralist notion of neutral inflation, the model also indicated that the exchange rate pass-through of sectors with a small (great) share of salaries in costs is less (more) sensitive to salary changes. Also, the model was extended to endogenize the exchange rate pass-through on prices in relation to the effects of a regime of real exchange rate oriented to economic development on the markup rate and the productive structure. The second goal of the article is to provide time-series evidence on the exchange rate pass-through in prices across different manufacturing sectors of the Brazilian economy over the 2010–2019 period. Empirical results delivered evidence that pass-through is partial and varies across sectors. Moreover, the empirical findings confirmed our theoretical results insofar as sectoral differences of pass-through are associated with the markup rate, the degree of outward orientation, the competition between firms, and the share of imported inputs of each sector. [ABSTRACT FROM AUTHOR]

The aim of this study is to delve into the intricate the mechanism through which alterations in currency exchange rates give rise to shifts in inflation rates, while taking into careful consideration the country's economic cycle. In order to accomplish this objective, we used a dataset that spanned from 1 January 1999 to 1 July 2023, focusing our analytical lens on three specific geographic areas, namely the Eurozone, the United Kingdom, and Canada. In our pursuit of understanding this complex relationship, we employed the Markov Switching Vector Autoregressive model. Our research outcomes can be succinctly encapsulated as follows: in the initial stages, particularly during phases characterized by robust economic growth, the transmission of exchange rate effects onto inflation levels appeared to exhibit a partial impact across all geographic areas under examination. However, during periods marked by economic downturns, both the United Kingdom and Canada displayed a distinctly more comprehensive transmission of these effects. Moreover, the prevailing projections for the forthcoming time horizon, across all the countries encompassed by our study, strongly indicate the onset of an expansionary phase that is projected to extend over a span of 25 months. Lastly, concerning the implications of unexpected disturbances or shocks, it is noteworthy that the response of exchange rates to inflation induced shocks was neither immediate nor as pronounced as the corresponding reaction of inflation to sudden shifts in exchange rates. [ABSTRACT FROM AUTHOR]

Australia is a leading exporter of primary and agricultural commodities like iron ore, coal, wool and beef. Industry stakeholders point out that exchange rate fluctuations remain a key determinant of export revenue. This article investigates the exchange rate pass‐through to export prices using the recently proposed impulse responses by the local projections technique. Employing export prices in all destination markets and trade‐weighted exchange rates, there is substantial evidence that 17 SITC industry and sub‐industry level prices experience moderate to high exchange rate pass‐through to export prices. These industry categories include sectors like minerals and natural resources products, which are homogenous in nature, and Australia enjoys a comparative advantage in the export of such goods. However, this competitive edge does not necessarily lead to higher export prices, as currency invoicing plays an important role in determining the extent of the pass‐through effect. Our findings have important policy implications, especially regarding the invoicing currency strategy for exporters selling homogenous items. [ABSTRACT FROM AUTHOR]

This paper analyses the exchange rate pass-through effects (ERPT) into consumer prices in Vietnam with a pegged regime during 2001–2019 using a structural vector autoregressive approach. The model is identified based on the fit of data rather than a priori theorizing. Firstly, we find that the degree of ERPT in the country is higher than that in other emerging and developed economies. High and volatile inflation, a high degree of openness, and exchange rate regime are essential factors that explain the difference. Besides, we show that ERPT is positively correlated with the level and the volatility of inflation across sectors. Since the results are derived from a single country, the heterogeneity is more likely to be attributable to industry-specific rather than macro factors. [ABSTRACT FROM AUTHOR]

As central banks struggle against high inflation in the aftermath of the Covid-19 pandemic and the war in the Ukraine, it is essential to understand the open economy aspects of inflation determination. Using a Bayesian VAR with time-varying parameters and stochastic volatility, we analyze the behavior of pass-through across time and in relation to macroeconomic variables. Pass-through increases with the size of the volatility of the exchange rate and the level, variance and persistence of shocks to domestic prices, which is in line with theory. The persistence of exchange rate shocks is associated with higher pass-through only for observations with low inflation. Furthermore, the effect of inflation persistence on pass-through is much higher for exchange rate appreciations than for depreciations. [ABSTRACT FROM AUTHOR]

ABSTRACT: In this research, the relationship between currency exchange rates and inflation in the context of Türkiye is investigated, covering the period 2006: Q1-2023: Q1. To achieve this objective, unit root tests on the variables are conducted using both Fourier KPSS and Standard KPSS methods. Additionally, Fourier SHIN and Standard SHIN cointegration tests are employed to determine the presence of a long-term connection between these variables. Furthermore, DOLS, FMOLS, and CCR estimators are utilized to estimate both long-term and short-term coefficients. The findings, which are obtained through all three estimation techniques, consistently indicate that increases in the exchange rate lead to higher inflation levels, whether in the long-term or the short-term. This result underscores the significant impact of exchange rates on inflation rates within the Türkiye economy. When Türkiye's economic structure is examined, it becomes evident that there is a substantial reliance on foreign exchange. This underscores the critical importance of maintaining exchange rate stability. Ultimately, the results emphasize the necessity of not only preserving exchange rate stability but also strengthening efforts to generate foreign exchange. ÖZ: Bu araştırmada, 2006 yılının ilk çeyreğinden 2023 yılının ilk çeyreğine kadar olan dönemi kapsayan Türkiye özelinde döviz kurları ile enflasyon arasındaki ilişki araştırılmaktadır. Bu amaca ulaşmak için değişkenler üzerinde birim kök testleri gerçekleştirilmektedir. Hem Fourier KPSS hem de Standart KPSS yöntemleri. Ayrıca bu değişkenler arasında uzun dönemli bir bağlantının varlığını tespit etmek amacıyla Fourier SHIN ve Standard SHIN eşbütünleşme testleri kullanılmaktadır. Ayrıca hem uzun vadeli hem de kısa vadeli katsayıları tahmin etmek için DOLS, FMOLS ve CCR tahmincilerinden yararlanılmaktadır. Her üç tahmin tekniği kullanılarak elde edilen bulgular, döviz kurundaki artışların hem uzun hem de kısa vadede daha yüksek enflasyon seviyelerine yol açtığını tutarlı bir şekilde göstermektedir. Bu sonuç, Türkiye ekonomisinde döviz kurlarının enflasyon oranları üzerindeki önemli etkisini vurgulamaktadır. Türkiye'nin ekonomik yapısı incelendiğinde dövize büyük bir bağımlılığın olduğu görülmektedir. Bu durum döviz kuru istikrarının korunmasının kritik önemini vurgulamaktadır. Sonuç olarak, sonuçlar sadece döviz kuru istikrarının korunmasının değil, aynı zamanda döviz yaratma çabalarının da güçlendirilmesinin gerekliliğini vurgulamaktadır.

AbstractOver the past three decades, Somalia’s economic landscape has witnessed a noticeable dependence on imported goods. The exchange rate was unregulated owing to the collapse of the country’s central bank. This unregulated environment has introduced significant volatility in exchange rates, profoundly impacting consumer prices and fostering a prevalent shift towards the utilization of the US dollar in economic transactions. Hence, this undertaking delves into the asymmetric effects of exchange rates on consumer prices in the presence of dollarization in Somalia from 1995 to 2019. Employing both linear and nonlinear autoregressive distributed lag (NARDL) cointegration methodologies, we explore the short-run and long-run dynamics between exchange rates and consumer price levels. The long-run empirical results from the NARDL demonstrate asymmetrical cointegration between the unregulated exchange rate and inflation in Somalia. Both appreciation and depreciation of exchange rates exert differing impacts on consumer prices, with depreciation exhibiting a more pronounced effect. In addition, the evidence suggests that the exchange rate pass-through is incomplete in Somalia regarding its inelastic coefficient. Oil prices exhibit a substantial and statistically significant association with inflation, both in the long-run and short-run, while GDP remains inconsequential. In the short-run, the most remarkable outcome indicates that dollarization significantly contributes to mitigating inflationary pressures. Based on our empirical insights, the central bank should enhance regulatory oversight of the foreign exchange market by strictly controlling and prohibiting the issuance of counterfeit banknotes to achieve price stability.

Copyright of Omer Halisdemir Universitesi Iktisadi ve Idari Bilimler Fakültesi Dergisi is the property of Omer Halisdemir University, Faculty of Economics & Admistrative Sciene and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

This paper investigates the role of firm‐to‐firm relationships in export market dynamics, documenting the following stylized facts for French exporters. First, exporters grow in a foreign market by expanding their customer base; the average French exporter doubles its number of buyers after 8 years. Second, sales to existing customers remain the predominant source of growth in a foreign market, with long‐lasting relationships contributing to most export values. Third, as a mechanism driving firms' growth in a relationship, prices fall as a relationship ages. Fourth, I exploit the Brexit referendum as a quasi‐natural experiment to examine how firm‐to‐firm relationships adjust in response to changes in market access. I find that French exporters with long‐lasting relationships in the UK are less affected by the referendum shock and exhibit higher exchange rate pass‐through. Overall, these findings indicate that long‐lasting relationships represent a crucial margin for export market growth and in shielding exporters from changing market conditions. This paper is part of the Economica 100 Series. Economica, the LSE "house journal" is now 100 years old. To commemorate this achievement, we are publishing 100 papers by former students, as well as current and former faculty. Davide Rigo is a Leverhulme Early Career Fellow at the LSE. [ABSTRACT FROM AUTHOR]

Using a time-varying parameter SVAR model over the period 1994 to 2021, this paper provides estimates of exchange rate pass-through (ERPT) to both producer and consumer prices for nine emerging Asian economies. We also examine the role of four global shocks as propagation channels to both producer and consumer price ERPT, specifically via oil prices, global output, US monetary policy, and the VIX. Our main findings are: (i) ERPT is incomplete and mostly higher for ERPT to producer than consumer prices; (ii) longer-term ERPT to producer and consumer prices is mostly greater in magnitude than shorter-term ERPT; (iii) ERPT has been declining for most Asian EMEs since around 2010; (iv) oil price and global output shocks mostly affect longer-term producer price ERPT in emerging Asia; and (v) US monetary policy and VIX shocks mostly affect longer-term consumer price ERPT in emerging Asia. [ABSTRACT FROM AUTHOR]

We assess exchange rate pass‐through when the Ruble exchange rate was managed in comparison with when it became free‐floating. Estimates of the error correction model for milling wheat prices suggest exchange rate pass‐through to be strongest in Russia's North Caucasus, the region closest to the Black Sea ports, and weakest in the remote regions of Volga and West Siberia since the Ruble exchange rate became free‐floating in 2014. In contrast, we find Russian regional wheat prices and the Ruble/USD exchange rate not cointegrated when the exchange rate was managed. Further, feed wheat (Class 5) is only weakly integrated compared to wheat Classes 3 and 4 for human consumption. With Russia's invasion of Ukraine, exchange rate pass‐through to Russian wheat prices has decreased sharply. Thus, the Ukraine war drives the disintegration of Russia's wheat sector from international markets and adds to the risks of supply chain disruption and geopolitical risks, which may increase export supply volatility. To strengthen trade resilience, countries that are dependent on wheat imports should diversify their import sources. [ABSTRACT FROM AUTHOR]

The incomplete pass-through of exchange rates to prices is a well-documented phenomenon. Firms respond optimally to exchange rate shocks by adjusting margins and buying inputs from regions with more advantageous terms of trade. Consumers, in turn, substitute goods that become more expensive for relatively cheaper goods after an exchange rate shock. We use data from the market for new cars in Colombia to empirically analyze the determinants of incomplete pass-through after a large depreciation of the local currency. We estimate a structural oligopoly model that nests the optimal reactions of firms and consumers to assess their relative importance in explaining the lack of response of retail prices to the exchange rate shock. We find that, in relative terms, the most important factor explaining incomplete pass-through is consumer substitution, followed by strategic interaction between sellers. [ABSTRACT FROM AUTHOR]

By using information on the geographical locations of exporting firms, we transform a national‐level dataset into a quasi‐firm‐product‐level dataset. First, by restricting the dataset to the two exporting ports out of over 100 ports, consistent with the multiproduct exporter model, we find heterogeneity in the exchange rate pass‐through (ERPT) among the auto models of a single automaker. We find weak evidence that the core product has a lower ERPT. Second, coupled with the manufacturer's suggested retail price in the US market, we find that the sales margins of US distributors have shrunk substantially, particularly when the US dollar depreciated after the global financial crisis. We find supporting evidence that a higher‐quality product has a lower ERPT. [ABSTRACT FROM AUTHOR]

The main purpose of this study is to analyze the effects of symmetry and asymmetry of the exchange rate pass-through in Middle-Income and High-Income countries that implement inflation-targeting policies. This study uses a sample of Middle-Income Countries (South Africa, Brazil, India, Indonesia, and Mexico) and High-Income Countries (Australia, Japan, Canada, Norway, and Sweden) in the form of time-series 2000:Q1- 2021:Q4 with the method of Autoregressive Distribution Lag (ARDL) and Nonlinear Autoregressive Distributed Lag (NARDL). The results showed that five countries have a significant positive effect on the real exchange rate on inflation in the short-run in the ARDL method. In addition, in the NARDL method, five countries significantly positively affect the depreciation of the real exchange rate on inflation in the short-run. Then, only one country has a significant negative effect between the appreciation of the real exchange rate on inflation in the short-run and eight countries in the long-run. Based on the estimation results, it can be concluded that the average quantity of real exchange rate effect on inflation (exchange rate pass-through) in Middle-Income Countries is greater than in High-Income Countries. Therefore, inflation-targeting policies are more flexible to be applied in high-income countries. In addition to the exchange rate, other variables such as oil prices, money supply, and real GDP also greatly affect inflation and have different effects in each country.

In this research, the relationship between currency exchange rates and inflation in the context of Türkiye is investigated, covering the period 2006:Q1-2023:Q1. To achieve this objective, unit root tests on the variables are conducted using both Fourier KPSS and Standard KPSS methods. Additionally, Fourier SHIN and Standard SHIN cointegration tests are employed to determine the presence of a long-term connection between these variables. Furthermore, DOLS, FMOLS, and CCR estimators are utilized to estimate both long-term and short-term coefficients. The findings, which are obtained through all three estimation techniques, consistently indicate that increases in the exchange rate lead to higher inflation levels, whether in the long-term or the short-term. This result underscores the significant impact of exchange rates on inflation rates within the Türkiye economy. When Türkiye's economic structure is examined, it becomes evident that there is a substantial reliance on foreign exchange. This underscores the critical importance of maintaining exchange rate stability. Ultimately, the results emphasize the necessity of not only preserving exchange rate stability but also strengthening efforts to generate foreign exchange. [ABSTRACT FROM AUTHOR]

Copyright of Journal of Economic Policy Researches / İktisat Politikası Araştırmaları Dergisi is the property of Journal of Economic Policy Researches / Iktisat Politikasi Arastirmalari Dergisi and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

The exchange rate is a crucial macro indicator for any open economy, whereby any change in the rate would influence, to a certain extent, various socioeconomic facets. One of the significant impacts is revealed in the pass-through of exchange rate variations to price inflation, also known as the exchange rate pass-through (ERPT). This paper explores the effect of ERPT on domestic inflation in Vietnam by comparing with other Asian economies. Specifically, pass-through mechanisms are examined for every single price as well as a distribution chain from import price index (IMP), producer price index (PPI) to consumer price index (CPI). The empirical results show that exchange rate shocks positively influence the price changes in Vietnam as well as in other Asian countries. According to Cholesky decomposition, the exchange rate plays a limited role in regulating CPI movements. Besides, world commodity prices are found to have a significant impact on domestic inflation across the sample-countries. Our findings reveal profound implications for monetary policy management and price stability. [ABSTRACT FROM AUTHOR]

Using a backward‐looking Philips curve framework and a Logistic Smooth Transition Regression (STR) model, this article examined the exchange rate pass‐through (ERPT) to final consumer prices in the case of India. Specifically, the nonlinearity of ERPT has been investigated with respect to the level of economic activity and the rate of inflation by considering two alternative measures of exchange rate. For the first transition variable, results are markedly different between high and low‐activity regimes and signify the favourable impact of economic activity on the extent of pass‐through. In the short run, 1% exchange rate appreciation would decrease the price level by 0.244% when the economy is in a low‐activity regime; however, the same appreciation increases the price level by 0.485% when there is a boom in the economy. In the long run, ERPT in the low‐activity regime is −0.358, and in the high‐activity regime, it is 0.039. In both regimes, pass‐through coefficients differ from zero and one, implying that neither local currency pricing nor producer currency pricing characterizes the ERPT mechanism. The impact of other important determinants of inflation is also well according to theoretical expectations. Finally, for the rate of inflation, we did not report any evidence favouring the Taylor hypothesis in the case of India. [ABSTRACT FROM AUTHOR]

The paper examined the relationship between the pressure in the exchange market, exchange rate, and trade balance in Nigeria to ascertain whether or not the J-Curve effects exist. The investigation was anchored on the Marshal-Lerner and the J-Curve theories using annual time series data from 1986 to 2021. The Structural Vector Autoregressive (SVAR) technique was employed, and the findings revealed that the pressure in the exchange market exerts a strong contemporaneous positive effect on the exchange rate in the country. Also, the findings showed that the exchange rate has a strong contemporaneous negative effect on the trade balance. Furthermore, the long-run results indicated that the exchange rate has a positive but weak effect on the country's trade balance. Based on these findings, it was concluded that the relationship that exists among foreign exchange market pressure, exchange rate, and balance of trade suggests the potentiality of the J-Curve effects in the economy. The study recommended that local production of goods and services in Nigeria should be strengthened so that the depreciation of the naira would improve the trade balance. In the event of naira depreciation, domestic consumers could redirect their demand to the consumption of locally produced goods and services. Also, local production, especially in manufacturing and agricultural processing, should be encouraged, and the quality of the products be enhanced for competitive exportation to improve the trade balance in the country. The policy implication is that policymakers can leverage naira depreciation as a policy tool to enhance Nigeria's balance of trade. [ABSTRACT FROM AUTHOR]

We explore the role of invoicing currency and global production integration in the effect of exchange rate pass‐through on import and export prices. We use 3‐digit product‐level data classified by end use and 2‐digit sector‐level data displaying varying integration with global value chains from an emerging country, Turkey. Overall, pass‐through rate significantly affects both export and import prices. Contrary to the literature, pass‐through is significantly higher for local currency‐priced goods. The relative rate of pass‐through to the U.S. dollar and euro‐priced goods is determined by the type of products and value‐added trade. Stronger integration with global value chains and the use of a vehicle currency tend to smooth out the response of domestic prices to changes in exchange rates. [ABSTRACT FROM AUTHOR]

Purpose: This paper aims to examine the asymmetric effects of exchange rate shocks on inflation for a small open economy, namely South Africa, over the period 1970Q1–2020Q1. Design/methodology/approach: A threshold vector autoregressive model that allows parameters to switch according to whether a threshold variable crosses an estimated threshold is employed to address the objective of this paper. The threshold value is determined endogenously using the Hansen (1996) test. Generalized impulse responses introduced by Koop et al. (1996) are used to study the effects of exchange rate shocks on inflation depending on their size, sign and timing to the inflation cycle. The authors also employed a Cholesky decomposition identification scheme to identify exchange rate shocks in the non-linear model. Findings: The results show that there is a non-linearity effect of the exchange rate shock on inflation. In particular, the effects of 1 or 2 standard deviations of positive (appreciation) or negative (depreciation) exchange rate shock on inflation are small in the long run but a bit larger in the high inflation regime than the low inflation regime. Originality/value: This paper contributes to the literature on the non-linear effects of exchange rate pass-through (ERPT) to inflation for Sub-Saharan African economies in general and the South African economy in particular by incorporating the size and timing of the exchange rate shocks to the inflation cycle. [ABSTRACT FROM AUTHOR]

Copyright of Journal of Financial Politic & Economic Reviews / Finans Politik & Ekonomik Yorumlar is the property of Journal of Financial Politic & Economic Reviews / Finans Politik & Ekomomik Yorumlar and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

This article produces estimates of exchange rate pass-through (ERPT) to import and wholesale prices considering the hypothesis of the existence of strategic interaction between local and foreign producers in the domestic market. We estimate a global vector autoregression (GVAR) model to address the unobservable common factor and the presence of global variables for 21 sectors of Brazilian manufacturing. This model internalizes that producer and import pricing is related within the sector, in addition to having an intersectorial relationship due to the linkage of the production chain. We estimate the aggregate ERPT for import and wholesale prices of 73% and 22% after twenty quarters of the shock, respectively. The results provided by the GVAR allow us to identify two different dynamics for the estimates of ERPT to import prices that are associated differently with the degree of the share of imports in sectors and the domestic market concentration. For approximately 50% of the manufacturing sectors considered, we have a more interdependent adjustment between foreign and domestic producers. [ABSTRACT FROM AUTHOR]

This paper surveys the existing literature on the relationship between inflation targeting (IT) and exchange rate pass-through (ERPT), with a focus on drawing lessons for future IT countries and estimating ERPT in India. The study finds that the main lessons emerging from the experience of IT in reducing pass-through are (a) monetary policy should focus on future inflation, (b) coordination between monetary and fiscal policy is important, and (c) IT is not a panacea. Furthermore, ERPT varies across countries and depends on the composition of the inflation index. The paper also presents a case study of Indian using Vector autoregression model. The study finds decline in ERPT during the IT period.

This study investigates overall ERPT in four ITF-adopting Asian Economies, emphasizing the trilemma between ERPT, economic openness, and the inflation target. Based on quarterly data observations from 1999 to the fourth quarter of 2022 with an application of combined distributed lag and adaptive expectation models that allows a fair assessment concerning ERPT throughout the time dimension, we reveal evidence that exchange rate changes will be transmitted immediately to increasing domestic prices in the short run. Similarly, increased interest policy, GDP, and trade openness will push consumer prices up in the short term through adaptive expectation mechanisms. However, the pass-through effect tends to decrease in the long run due to a credible ITF implementation. Meanwhile, the pass-through effect concerning trade openness varies across countries in the short run, while openness tends to increase pressures on consumer prices in the long run. This condition allows further investigation to examine the passthrough effect and its transmission to various prices, including prices, imports, export prices, economic structure, and the effect of fear of floating in the ITF. [ABSTRACT FROM AUTHOR]

We develop an open economy, search theoretic, monetary model with heterogeneous households which is characterized by incomplete pass-through of exchange rate movements to import price indices. Partial pass-through arises in our environment due to buyers' responses to exchange rate movements in the presence of competitive search in international goods' markets. Generally, in the theory of competitive search, agents choose a submarket in which to exchange goods, where different submarkets are characterized by different trading probability and price combinations. Preference and policy shocks which induce exchange rate movements cause households to choose a different submarket (store) for their purchases of traded goods—an extensive margin response. This store-switching response by households is a novel mechanism we identify that mitigates the direct effect of nominal exchange rate changes on equilibrium traded goods' prices, thereby generating incomplete exchange rate pass-through to price indices. Due to risk aversion by households, the degree of pass-through depends on the size and direction of the initial shock, making the model consistent with the observed phenomenon of asymmetric pass-through. Importantly, by incorporating household heterogeneity, we are also able to examine the role of precautionary savings in affecting pass-through, characterize how pass-through varies across different types of households, and examine the distributional effects of exchange rate movements. [ABSTRACT FROM AUTHOR]

Using quarterly data from Q1 2002 to Q4 2021, a Nonlinear Autoregressive Distributed Lag (NARDL) model is utilised to investigate the potential asymmetry in the exchange rate pass-through (ERPT) to consumer prices in 11 Eastern European countries. The findings show that both the appreciations and depreciations of the nominal effective exchange rate (NEER) have significant long-term effects on consumer prices, with the appreciations being stronger in countries with a fixed exchange rate regime, especially the Baltic States. Incomplete long-term ERPT is observed in the majority of countries, except Estonia. Short-term ERPT is much weaker and often of an opposite direction for appreciations and depreciations. Additionally, a strong uniform long-term effect of both the money supply and crude oil prices was observed, while the short-term effects are mixed. As regards economic liberalisation, both long- and short-term effects are country-specific and of a different direction. [ABSTRACT FROM AUTHOR]

This paper estimates the New Keynesian Phillips Curve (NKPC) with imperfect exchange rate pass-through (alternatively, deviations from the law of one price). Our results describe the nature of inflation dynamics and business cycles under imperfect pass-through, with importance of both domestic price rigidity and import price rigidity for the US and other four open economies. The estimates of structural parameters of the import price and domestic price rigidities are not same and affect inflation-output gap elasticity and inflation-law of one price gap elasticity. The results yield implications for the stabilisation of real activity (also domestic inflation) compared to the deviations from the law of one price. [ABSTRACT FROM AUTHOR]

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This paper investigates nonlinearities in the exchange rate pass-through (ERPT) to consumer and import prices by estimating a smooth transition regression model with different inflation expectations regimes for five inflation targeting countries (the UK, Canada, Australia, New Zealand and Sweden) and three non-targeters (the US, the Euro-Area and Switzerland) respectively over the period January 1993–August 2021. Both market and survey measures of inflation expectations are used as the transition variable, and the nonlinear model is also assessed against a benchmark linear model. The pass-through to both consumer and import prices is found to be stronger in the nonlinear model and in some cases is close to being complete. Also, it is stronger in regime 2, i.e., when markets and consumers expect high inflation rates in the future; this suggests that anchoring inflation expectations helps to reduce the ERPT. Finally, inflation expectations appear to affect the ERPT more in inflation targeting countries. [ABSTRACT FROM AUTHOR]

This article studies the way in which international financial integration affects the domestic transmission of monetary policy in a standard New Keynesian open economy model. It extends Woodford's (2010) model to a framework, in which not only a global integration of goods and factor markets, but also financial markets might matter for the monetary transmission mechanism. The article considers two broad types of experiments meant to capture financial integration, a decrease in the costs of international asset trading and an increase in the level of gross foreign asset holdings. The main finding is that none of the analyzed forms of financial integration undermine the effectiveness of monetary policy in influencing domestic output and inflation. On the contrary, under a wide array of parameterizations, and even in an environment where the exchange rate pass‐through elasticity is very low and the Home country's traded goods sector is very small compared to world markets, monetary policy is more, rather than less, effective as the positive impact of strengthened exchange rate and wealth channels more than offsets the negative impact of weakened interest rate channels. Monetary policy is most effective in simulations interacting the highest degrees of the two forms of financial integration. [ABSTRACT FROM AUTHOR]

This work analyzes the exchange rate pass-through to inflation in Brazil through a methodology that simultaneously considers the time and the frequency domains applied to a New Keynesian Phillips Curve with exchange rate. For this purpose, we employ the continuous wavelet transform methodology that allows for disaggregating effects in different frequency bands over time. The results show that, in general, the relationship between inflation and the exchange rate is generally weak for the short and medium run (high frequencies), except in some periods marked by financial crises, political instability, and high inflation. On the other hand, we found strong evidence of the relationship between inflation and the exchange rate in the long run (low frequencies). A robustness analysis using different inflation and exchange rate measures, such as free prices, tradable and non-tradable prices, and the real effective exchange rate, confirms the results previously found in the baseline model. [ABSTRACT FROM AUTHOR]

This paper includes financing constraints and product quality in the theoretical framework of Corsetti and Dedola ( 2005), and examines the effects of financing constraints and product quality on RMB exchange rate pass-through. We carry out the empirical test by using matched data from the Chinese Annual Survey of Industrial Firms ( CASIF) and China Customs Statistics from 2000 to 2013 to verify the model findings. This paper finds that firms with high financing constraints and low product quality have high exchange rate pass-through. Product quality has an important moderating effect when financing constraints affect the exchange rate pass-through : as the product quality improves, the impact of financing constraints on the exchange rate pass-through shows an inverted U-shaped characteristic. Further studies find that the nonlinear relationship between product markup and product quality is an important reason for this inverted U-shape. Specifically, only when product quality is high enough, product quality upgrading will significantly increase its markup, thus reducing the extent to which exchange rate pass-through is affected by financing constraints. We also find that RMB exchange rate pass-through is asymmetric. In the case of appreciation of the RMB exchange rate, the exchange rate pass-through is lower and more susceptible to financing constraints and product quality. [ABSTRACT FROM AUTHOR]

Introduction: Exchange rate pass-through (ERPT) is one of the most important indicators for monetary policymakers that shows the impact of exchange rate volatility on price indices (such as CPI, PPI, etc.). The economic stability and inflation environment are two factors affecting ERPT. The lower the inflation environment, the lesser the ERPT. In an oil-exporting country, the long-run situation of oil revenues can be a state variable of the economy and affect the expectations of economic agents. Therefore, the purpose of this study is to investigate the effect of sanctions against Iran and oil revenues situation on the ERPT from 1990Q2 to 2021Q1. Methodology: Regarding the implementing date of sanctions (2012Q1), the sanction period is from 2012Q1 to 2021Q1. Considering Lucas' critique, the switching models are not appropriate, and separated models are preferred. Therefore, by using the Bai-Perron (2003) method and taking oil revenues as a state variable of economy, the rest of the period is separated into two periods. The first period (from 1990Q1 to 2000Q4) is the phase of shortage in oil revenues and the second period (from 2001Q1 to 2011Q4) is the phase of abundance in oil revenues. The inflation environment during sanctions and shortage in oil revenues was high, and it was low in the period of abundance in oil revenues. The ERPT for each period was calculated using the Structural Vector Autoregressive (SVAR) model. Oil price gap is the exogenous variable and the endogenous variables are respectively as follows: USA GDP, USA CPI, domestic GDP, exchange rate, liquidity and domestic CPI. All variables are in the first difference of logarithmic form. The Cholesky decomposition were used. The optimal lags for each model were selected by Hannan-Quinn information criterion (HQ), Akaike information criterion (AIC) and Final Prediction Error (FPE). In this model, ERPT is the ratio of the accumulated response of CPI to exchange rate structural shock. ERPT=k=1nDLCPIkk=1nDLEXk (1) To investigate the effect of endogenous variables shocks on domestic CPI, variance and historical decomposition are used. Finally, the autoregressive trend of imports for each period is calculated to explain the status of imports versus different oil revenues. These equations can explain the dependency of CPI to imports. Results and Discussion: Only the ERPT in the sanctions period has a long-run effect on the economy. This effect is about 43%. The ERPT is 9.9% for the period of shortage in oil revenues, 25.1% for the period of abundance in oil revenues and 10.1% for the sanctions period. Unlike most previous studies, the results show that the lower the inflation environment, the higher the ERPT, and the higher the inflation environment, the lower the ERPT. The main cause of these unexpected changes in ERPT is related to share of imports in consumption basket. The import trend, either in the sanctions or the shortage oil revenues period, was decreasing while in the abundant oil revenues period, was increasing. The results of the variance and historical decomposition show that in the period of sanctions, the exchange rate structural shocks have the largest share in inflation shocks, while in the other two periods, the inflation structural shock has the largest share in inflation shocks. Conclusion: The central bank of Iran is using the nominal exchange rate as an anchor to limit inflation and, finally, increase the monetary policymaker's credibility. In Iran, increasing oil revenues leads to implementing the crawling peg exchange rate system instead of the managed floating exchange rate system, and consequently, not only the PPI inflation will be greater than the imported goods inflation, but also the imports will increasingly grow. Therefore, it is expected that the share of imports in the consumption basket grows and CPI will be more sensitive to imports. These results can explain the ERPT changes. In order to increase the credibility of the monetary policy maker and reduce the ERPT sensitivity to oil revenue situations, instead of using the nominal exchange rate anchor, the central bank should be more independent, commit to implementing monetary policy. So, according to the real sector of the economy, the central bank should announce its goals in the short-run and commit to them and announce the status report at the appointed times, and in the medium run, the central bank should pursue only its goals implicitly and increase its credibility among economic agents by making the economy more predictable. The more independent the central bank is, the easier it will be to follow the above policy.

Abstract This paper analyzes the exchange rate pass-through to consumer prices for 85 categories of goods and services in Switzerland. The pass-through estimates are computed using a synthetic difference-in-differences approach that exploits the large Swiss franc appreciation that followed the unexpected removal of the Swiss franc-Euro floor in January 2015. The overall 1-year all-items pass-through is 0.12, which shows that the pass-through is highly incomplete. There is an important heterogeneity across product categories, where pass-through can be as high as 0.80. These variations are linked to the international trade characteristics of the products, as the prices of goods with a high degree of international tradability, with a high import share, or that depend on tourism are shown to be more sensitive to the exchange rate.

This study investigates the pass-through of exchange rate shocks to different aggregate prices in China. The baseline analysis is carried out with vector autoregressive models incorporating a distribution chain of pricing, and various modifications are examined for robustness. The central results show an appreciation of the local currency tends to suppress domestic inflation at the early production stages, although the pass-through effect only amounts to a moderate degree for consumer prices. As the contribution of external factors to the persistently low inflation environment mostly has been modest, the paper suggests that the monetary authority can contribute to the permanent component of low exchange rate pass-through to domestic inflation, by continually conducting a credible and efficient stable-inflation policy.

The purpose of this study is to investigate the basic features of the exchange rate pass-through in Taiwan using industrial import price indices and then to analyze the preliminary characteristics of parameter instability. We build up a mark-up model with transaction cost to derive the empirical estimation formula in order to understand the imported exchange rate pass-through. In order to prevent possible dynamic aggregation bias, we estimate the sectoral exchange rate pass-through using industrial import price indices. Of importance, we found that the degrees of exchange rate pass-through were dramatically different across sectors, and there are the problems of instability. More specifically, the variability of exchange rate pass-through in the final goods sector is much bigger than that in the intermediate goods sector. Finally, the transportation cost plays a non-trivial role only in aggregate imports and some sectors. [ABSTRACT FROM AUTHOR]

This paper assesses the exchange rate pass-through (ERPT) for forest product prices (i.e., sawnwood, logs) by applying a two-regime Self-Exciting Threshold Autoregressive (SETAR) model. We incorporate autoregressive second-order dynamics in the regime equations. This leads to better forecasts, as integrating more lags helps capture the cumulative effects of the price dynamics. We examine sawnwood and log products traded in the United States, Malaysia (Southeast Asia) and Cameroon (West Africa). Our results illustrate the importance of applying the two-regime SETAR-type models to analyze the non-linear exchange rate pass-through for forest product markets. The impulse response analysis of each price pair supports the changing behavior of price ratios in various regimes. This may be regarded as another justification to apply models accounting for structural changes to investigate the exchange rate pass-through in a non-linear fashion. The aftershock adjustment process is similar, but the amplitude of the impact differs among markets. The results reveal potential arbitrage opportunities in the forestry industry. [ABSTRACT FROM AUTHOR]