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Nonlinear Exchange Rate Pass-Through to Domestic Prices in Ukraine

Oleksandr Faryna

No 01/2016, Working Papers from National Bank of Ukraine

Abstract: This paper aims to estimate the degree of exchange rate pass-through (ERPT) to domestic prices in Ukraine considering nonlinearities with respect to the size and direction of exchange rate movements, inflation environment, and business cycles. We use disaggregated consumer price data and employ a panel autoregressive distributed lag model including threshold parameters to account for nonlinearities in the ERPT mechanism. Estimation results suggest that the pass-through effect is higher from currency depreciation than in the case of appreciation for most price groups. We also find that price responsiveness to small, medium, and large exchange rate changes is nonlinear. In particular, we provide evidence that prices are sensitive to small changes, but the pass-through effect is insignificant if exchange rate movements are moderate. Furthermore, the degree of ERPT is higher in periods of extremely large depreciations, high inflationary environment, and economic slumps.

Keywords: Exchange rate pass-through; inflation; Ukraine; nonlinear ERPT; Autoregressive Distributed Lag model (search for similar items in EconPapers)
JEL-codes: E31 E52 E58 F31 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2016-12
New Economics Papers: this item is included in nep-cis, nep-mac, nep-mon and nep-opm
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Published in Visnyk of the National Bank of Ukraine, June 2016, pages 30-42

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