IMF Working Papers

Non-Linear Exchange Rate Pass-Through in Emerging Markets

By Francesca Caselli, Agustin Roitman

January 5, 2016

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Francesca Caselli, and Agustin Roitman. Non-Linear Exchange Rate Pass-Through in Emerging Markets, (USA: International Monetary Fund, 2016) accessed November 21, 2024
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper estimates exchange rate pass-through to consumer prices in emerging markets focusing on non-linearities and asymmetries. We document non-linearities and asymmetries in the transmission of exchange rate fluctuations to prices using local projection techniques to obtain state dependent impulse responses in a panel of 28 emerging markets. We find significant evidence of non-linearities during episodes of depreciation greater than 10 and 20 percent. More specifically, we find that, after one month, the exchange rate pass-through coefficient is equal to 18 and 25 percent respectively, compared to a coefficient of 6 percent in the linear case. We also investigate the role of temporary vs. permanent shocks and the adoption of an inflation targeting regime in the transmission from exchange rate movements to prices. We perform a set of robustness checks, addressing the presence of outliers and potential endogeneity concerns.

Subject: Depreciation, Exchange rate pass-through, Exchange rates, Foreign exchange, Inflation, Inflation targeting, Monetary policy, National accounts, Prices

Keywords: Africa, Depreciation, Depreciation episode, Depreciation volatility, Emerging Markets, ERPT coefficient, Exchange rate, Exchange rate movement, Exchange Rate Pass-Through, Exchange rates, Exchange rates fluctuation, Inflation, Inflation environment, Inflation targeting, Inflation targeting vis á vis non-targeters, Interactions terms, IT framework, Non-Linearities, Pass-through effect, Rate of inflation, Shocks to price, WP

Publication Details

  • Pages:

    37

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2016/001

  • Stock No:

    WPIEA2016001

  • ISBN:

    9781513578262

  • ISSN:

    1018-5941

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