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Exchange rate pass-through in emerging countries: Do the inflation environment, monetary policy regime and institutional quality matter?

Antonia Lopez-Villavicencio and Valérie Mignon ()
Authors registered in the RePEc Author Service: Antonia López Villavicencio ()

No 2016-18, EconomiX Working Papers from University of Paris Nanterre, EconomiX

Abstract: In this paper, we estimate the exchange rate pass-through (ERPT) to consumer prices and assess its dynamics for a sample of 15 emerging countries over the 1994-2015 period. To this end, we augment the traditional bivariate relationship between the nominal effective exchange rate and inflation by accounting for the inflation environment, monetary policy regime, as well as domestic institutional factors. We show that both the level and volatility of inflation matter in the sense that declining ERPT is evidenced with more stable and anti-inflationary environment. Monetary policy also plays a key role since adopting an inflation target-especially de jure-leads to a significant reduction in ERPT for most countries. Adopting exchange rate targeting regime matters as well, contributing to a diminishing ERPT. Finally, we find evidence that transparency of monetary policy decisions clearly reduces ERPT, while this is not the case for central bank independence.

Keywords: exchange rate pass-through; inflation; emerging countries; monetary policy. (search for similar items in EconPapers)
JEL-codes: E31 E52 F31 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2016
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon, nep-opm and nep-pke
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Related works:
Working Paper: Exchange Rate Pass-through in Emerging Countries: Do the Inflation Environment, Monetary Policy Regime and Institutional Quality Matter? (2016) Downloads
Working Paper: Exchange rate pass-through in emerging countries: Do the inflation environment, monetary policy regime and institutional quality matter? (2016)
Working Paper: Exchange rate pass-through in emerging countries: Do the inflation environment, monetary policy regime and institutional quality matter? (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:drm:wpaper:2016-18

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