Exchange Rate Changes and Inflation in Post-Crisis Asian Economies: VAR Analysis of the Exchange Rate Pass-Through

Takatoshi Ito () and Kiyotaka Sato
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Kiyotaka Sato: Faculty of Economics, Yokohama National University

No CIRJE-F-406, CIRJE F-Series from CIRJE, Faculty of Economics, University of Tokyo

Abstract: The pass-through effects of exchange rate changes on the domestic prices in the East Asian countries are examined using a VAR analysis including several price indices and domestic macroeconomic variables as well as the exchange rate. Results from the VAR analysis show that (1) the degree of exchange rate pass-through to import prices was quite high in the crisis-hit countries; (2) the pass-through to CPI was generally low, with a notable exception of Indonesia: and (3) in Indonesia, both the impulse response of monetary policy variables to exchange rate shocks and that of CPI to monetary policy shocks are positive, large and statistically significant. Thus, Indonesia's accommodative monetary policy as well as the high degree of the CPI responsiveness to exchange rate changes was important factors that resulted in the spiraling effects of domestic price inflation and sharp nominal exchange rate depreciation in the post-crisis period.

Pages: 46pages
Date: 2006-03
New Economics Papers: this item is included in nep-fmk, nep-ifn, nep-mac, nep-mon and nep-sea
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Citations: View citations in EconPapers (44)

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Related works:
Working Paper: Exchange Rate Changes and Inflation in Post-Crisis Asian Economies: VAR Analysis of the Exchange Rate Pass-Through (2006)
Working Paper: Exchange Rate Changes and Inflation in Post-Crisis Asian Economies: VAR Analysis of the Exchange Rate Pass-Through (2006)
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