Exchange rate pass-through in Nepal

Anil Lama, Birendra Bahadur Budha, K.P. Prabhesh and Sona Rana

Journal of Asian Economics, 2025, vol. 97, issue C

Abstract: This paper estimates the exchange rate pass-through in Nepal using Local Projections based on monthly data for the period from March 1993 to October 2023. The paper finds a significant exchange rate pass-through to consumer prices for up to 12 months. Moreover, the pass-through is significant during the depreciation of the exchange rate but not during appreciation periods, indicating the asymmetric effect of exchange rate changes. Additionally, exchange rate pass-through has significantly declined after the formal announcement of Nepalese monetary policy in 2003 and the global financial crisis in 2007. The presence of a significant pass-through, given the peg with the Indian Rupee and high trade integration with India, suggests that it is important for the central bank to consider this pass-through while making monetary policy decisions.

Keywords: Exchange rate pass-through; Consumer prices; Inflation; Exchange rate (search for similar items in EconPapers)
JEL-codes: E31 E58 F41 F62 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:asieco:v:97:y:2025:i:c:s1049007825000211

DOI: 10.1016/j.asieco.2025.101897

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