The Effect of Monetary and Fiscal Credibility on Exchange Rate Pass-Through in an Emerging Economy

Helder de Mendonça () and Felipe Tostes ()

Open Economies Review, 2015, vol. 26, issue 4, 787-816

Abstract: This study relates to the literature on the exchange rate pass-through effect on inflation for developing economies under inflation targeting. The novelty concerns the investigation of the effect of both monetary and fiscal credibility on pass-through. The article addresses empirical evidence, based on the Brazilian experience, regarding the idea that high credibility might reduce the exchange rate pass-through on inflation. The findings suggest that although monetary credibility is relevant only for pass-through on inflation of market prices, fiscal credibility is an important tool to reduce the pass-through on both inflation and inflation expectations. Copyright Springer Science+Business Media New York 2015

Keywords: Pass-through; Fiscal credibility; Monetary credibility; Inflation targeting; E31; E52; E58; E62; E63 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (33)

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DOI: 10.1007/s11079-014-9339-3

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