The Pass-through from Depreciation to Inflation: A Panel Study

Ilan Goldfajn and Sergio Werlang

No 5, Working Papers Series from Central Bank of Brazil, Research Department

Abstract: The paper studies the relationship between exchange rate depreciations and inflation using a sample of 71 countries in the period 1980-1998. The main determinants of the extent of inflationary pass-through of the depreciations (appreciations) are the cyclical component of output, the extent of initial overvaluation of the real exchange rate (RER), the initial rate of inflation, and the degree of openness of the economy. The paper finds that the pass-through coefficients increase the larger is the horizon measured, with its peak at 12-months. It also finds that RER misalignment is the most important determinant of inflation for emerging markets while the initial inflation is the most important variable for developed countries. Using the estimated model, the paper predicts somewhat higher inflation than actually observed in several well-known large depreciation cases, even if one takes into account existing measures of exchange rate expectations. This suggests that policy makers should use caution when using past models to predict future inflation in the aftermath of large depreciations.

Date: 2000-07
References: View complete reference list from CitEc
Citations: View citations in EconPapers (241)

Downloads: (external link)
https://www.bcb.gov.br/content/publicacoes/WorkingPaperSeries/wps05.pdf (application/pdf)

Related works:
Working Paper: The pass-through from depreciation to inflation: a panel study (2000)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bcb:wpaper:5

Access Statistics for this paper

More papers in Working Papers Series from Central Bank of Brazil, Research Department
Bibliographic data for series maintained by Rodrigo Barbone Gonzalez ().