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Inflation and Exchange Rate Pass-Through / Ha, Jongrim.
World Bank Open Knowledge Repository (formerly "World Bank E-Library Publications") Available online
View online- Format:
- Book
- Government document
- Author/Creator:
- Ha, Jongrim.
- Series:
- Policy research working papers.
- World Bank e-Library.
- Language:
- English
- Subjects (All):
- Exchange Rate.
- Exchange Rate Pass-Through.
- Finance and Financial Sector Development.
- Financial Structures.
- Foreign Exchange.
- Inflation.
- International Economics and Trade.
- International Trade and Trade Rules.
- Macroeconomic Management.
- Macroeconomics and Economic Growth.
- Monetary Policy.
- Trade and Services.
- Local Subjects:
- Exchange Rate.
- Exchange Rate Pass-Through.
- Finance and Financial Sector Development.
- Financial Structures.
- Foreign Exchange.
- Inflation.
- International Economics and Trade.
- International Trade and Trade Rules.
- Macroeconomic Management.
- Macroeconomics and Economic Growth.
- Monetary Policy.
- Trade and Services.
- Physical Description:
- 1 online resource (42 pages)
- Place of Publication:
- Washington, D.C. : The World Bank, 2019.
- System Details:
- data file
- Summary:
- The degree to which domestic prices adjust to exchange rate movements is key to understanding inflation dynamics, and hence to guiding monetary policy. However, the exchange rate pass-through to inflation varies considerably across countries and over time. By estimating structural factor-augmented vector-autoregressive models for 47 countries, this paper brings to light two fundamental factors accounting for these variations: the nature of the shock triggering currency movements and country-specific characteristics. The empirical results in this paper are three-fold. First, an empirical investigation demonstrates that different domestic and global shocks can be associated with widely different pass-through ratios. Second, country characteristics matter, including policy frameworks that govern monetary policy responses, as well as other structural features that affect an economy's sensitivity to currency fluctuations. Pass-through ratios tend to be lower in countries that combine flexible exchange rate regimes and credible inflation targets. Finally, the empirical results suggest that central bank independence can greatly facilitate the task of stabilizing inflation following large currency movements and allows fuller use of the exchange rate as a buffer against external shocks.
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