Inflation Targeting and the Pass-through Effect in Mongolia

Hiroyuki Taguchi () and Jambaldorj Bolortuya ()

Business and Economic Research, 2019, vol. 9, issue 2, 57-71

Abstract: This paper aims to provide empirical evidence on the relationship between inflation targeting and the pass-through effect from exchange rate to consumer prices, focusing on the case of Mongolia. The study estimates a vector-autoregressive model, and examines the impulse responses of consumer prices to the shock of exchange rate for the pre-inflation targeting period and the post-inflation targeting period. The empirical analysis identified the existence of the pass-through effect during the pre-inflation targeting period and the loss of the pass-through during the post-inflation targeting period. It was speculated that the loss of the pass-through comes from the ¡°forward-looking¡± monetary policy rule in Mongolian inflation targeting, so that it can work on the expectations of domestic agents such that they are less inclined to change prices in response to a given exchange rate shock.

Keywords: Inflation targeting; Pass-through effect; Mongolia; Vector Autoregressive model; Forward-looking rule (search for similar items in EconPapers)
Date: 2019
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