Asymmetry and non-linearity in exchange rate pass-through: Evidence from scanner data

In Kyoung Kim (), Jinhyuk Lee () and Hyejoon Im ()
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In Kyoung Kim: Department of Economics, Sogang University, Seoul, Korea
Jinhyuk Lee: Department of Economics, Korea University
Hyejoon Im: School of Economics & Finance, Yeungnam University

No 2303, Working Papers from Nam Duck-Woo Economic Research Institute, Sogang University (Former Research Institute for Market Economy)

Abstract: Using retail scanner data from Kazakhstan, an emerging economy with significant and un-expected exchange rate fluctuations, we observe an incomplete yet substantial exchange rate pass-through (ERPT) into prices. Specifically, we note a 50% change occurring a year after the initial shock. The ERPT demonstrates asymmetry in response to exchange rate movements. Notably, the direction of this asymmetry is opposite for imported versus domestic products. Furthermore, our findings indicate that ERPT is non-linear; the price response is more pro-nounced when the exchange shock is small, aligning with the existence of menu costs. Our results also reveal that larger retailers exhibit a greater ERPT compared to smaller or medium-sized retailers, regardless of the exchange rate shock direction. Understanding these asymmetric and non-linear price responses to exchange rate shocks may be crucial for formulating effective inflation targeting policies, especially in emerging economies prone to high inflation.

Keywords: exchange rate pass-through; consumer prices; scanner data; inflation dynamics (search for similar items in EconPapers)
JEL-codes: F31 F41 L16 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2023
New Economics Papers: this item is included in nep-ifn, nep-inv, nep-mon and nep-opm
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