Exchange Rate Pass-Through and Monetary Policy: A Cross-Commodity Analysis

Jui-Chuan Chang and Ching-Chuan Tsong

Emerging Markets Finance and Trade, 2010, vol. 46, issue 6, 106-120

Abstract: This paper investigates how a change in monetary policy affects the degree and the speed of exchange rate pass-through to import prices in the emerging market economy, using a newly constructed data set from Taiwan's trading commodities. First, the analytical framework is set up following Goldberg and Knetter (1997) and Campa and Goldberg (2005). Next, the period-by-period and the multiple-period cumulative effects of monetary policy on the degree of exchange rate pass-through can be traced out. The dynamic panel data model is then estimated by Bun and Carree's (2005) bias-corrected approach, which enjoys easy calculation and robust testing performances, leading to more reliable empirical results. Our cross-commodity evidence strongly supports the partial pass-through in the short run and the complete pass-through in the long run. Moreover, following a change in monetary policy, this pass-through effect increases during several initial periods and declines to zero over time.

Keywords: dynamic panel; emerging market; exchange rate pass-through; monetary policy (search for similar items in EconPapers)
Date: 2010
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