External Vulnerabilities and Exchange Rate Pass-Through: The Case of Emerging Markets

Abdullah Kazdal and Muhammed Hasan Yilmaz

Working Papers from Research and Monetary Policy Department, Central Bank of the Republic of Turkey

Abstract: This study investigates the differentiation of exchange rate-inflation nexus in emerging markets (EM) in the context of external vulnerabilities for the period 2010-2018. In the empirical setting, EM countries are classified into two subgroups as “more vulnerable” and “less vulnerable” according to vulnerability indicators to identify how exchange rate pass-through (ERPT) dynamics change when the vulnerability is amplified by utilizing the interacted panel vector autoregression (IPVAR) model. Empirical results show that more resilient EM countries are experiencing a lower degree of ERPT during the sample period. Countries facing more prominent dollarization and current account deficit are subject to stronger ERPT, while higher inflation, higher risk premium and higher FX debt levels are associated with increasing ERPT as well. On the other hand, countries with higher reserve adequacy or higher foreign direct investment show lower ERPT compared to lower EM groups.

Keywords: Exchange rate pass-through; External vulnerabilities; Interacted panel VAR model (search for similar items in EconPapers)
JEL-codes: C23 E31 F31 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-mac, nep-mon and nep-opm
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN ... g+Paperss/2021/21-05 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tcb:wpaper:2105

Access Statistics for this paper

More papers in Working Papers from Research and Monetary Policy Department, Central Bank of the Republic of Turkey Contact information at EDIRC.
Bibliographic data for series maintained by Sermet Pekin () and Ilker Cakar () and ().