Asymmetry and non-linearity in exchange rate pass-through: Evidence from scanner data

In Kyung Kim, Jinhyuk Lee and Hyejoon Im

Journal of International Money and Finance, 2024, vol. 149, issue C

Abstract: Using retail scanner data from Kazakhstan, an emerging economy with significant and unexpected exchange rate fluctuations, we observe an incomplete yet substantial exchange rate pass-through (ERPT) into prices. Specifically, we note a 50% change occurring a year after the initial shock. The ERPT demonstrates asymmetry in response to exchange rate movements. Notably, the direction of this asymmetry is opposite for imported versus domestic products. Furthermore, our findings indicate that ERPT is non-linear; the price response is more pronounced when the exchange shock is small, aligning with the existence of menu costs. Understanding these asymmetric and non-linear price responses to exchange rate shocks may be crucial for formulating effective inflation targeting policies, especially in emerging economies prone to high inflation.

Keywords: Exchange rate pass-through; Consumer prices; Scanner data; Inflation dynamics (search for similar items in EconPapers)
JEL-codes: F31 F41 L16 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:149:y:2024:i:c:s0261560624001803

DOI: 10.1016/j.jimonfin.2024.103193

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