Exchange Rate Pass-Through in Candidate Countries

Fabrizio Coricelli (), Bostjan Jazbec () and Igor Masten

No 3894, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In this Paper we analyse the link between the choice of exchange rate regime and inflationary performance in four EU accession countries: the Czech Republic, Hungary, Poland and Slovenia. Estimation of pass-through effect of exchange rate changes to CPI inflation is complemented by I(2) co-integration analysis of stochastic nominal trends. The results allow a clear ranking of countries according to the size of the pass-through effect and the importance of exchange rate shocks to overall inflationary performance. In particular, we find that perfect pass-through effect can be associated with accommodative exchange rate policy, which can moreover become the most important source of inflationary pressures. The analysis suggests that for CEEC-4 the early adoption of the euro can provide the most efficient framework for reducing inflation.

Keywords: emu accession; I(2) co-integration analysis; pass-through effect (search for similar items in EconPapers)
JEL-codes: C32 E42 E52 E58 (search for similar items in EconPapers)
Date: 2003-05
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