 Does Monetary Integration Reduce Exchange Rate Pass‐Through?Slavi Slavov () The World Economy, 2008, vol. 31, issue 12, 1599-1624 Abstract: There are several theoretical arguments for why the adoption of a common currency (either a currency union or a currency board) may reduce the exchange rate pass‐through (ERPT) to domestic consumer prices. This paper examines a broad panel of 101 countries over the period 1976–2006, using two‐stage instrumental‐variable estimation techniques in order to resolve the potential endogeneity problem. The main result is that ERPT indeed tends to decline in countries participating in a common currency arrangement. In particular, there has been a strong reduction in pass‐through in the member countries of the European Monetary Union (EMU) since the launch of the euro. Currency boards do not appear to be different from currency unions – both reduce the pass‐through from depreciation to inflation. Furthermore, the negative impact of common currencies on ERPT is at work in both high‐income and low‐income countries. Finally, most of the reduction in pass‐through to consumer prices under common currency arrangements happens somewhere along the pricing chain between the border and the supermarket shelf. Date: 2008 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:worlde:v:31:y:2008:i:12:p:1599-1624 Ordering information: This journal article can be ordered from Access Statistics for this article The World Economy is currently edited by David Greenaway More articles in The World Economy from Wiley Blackwell |
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