Exchange rate pass-through and inflation targeting

Download

index.pdf

Date

2009

Author

Gülşen, Eda

Metadata

Show full item record

Item Usage Stats

241
views

97
downloads

In this study, we aim to investigate the impact of inflation targeting (IT) and the recent global disinflation on exchange rate pass-through (ERPT) using quarterly data from 1980:1 to 2009:1 for 51 industrial and emerging market (EM) countries. To this end, we employ not only the conventional panel data estimation methods but also the recent Common Correlated Effects Pooled estimation procedure by Pesaran (2006) which allows estimating the impact of common global shocks such as global inflation. We also explore some other determinants of ERPT during the recent global disinflation period. Furthermore, we consider asymmetric effects of positive and negative output gaps as proxies for domestic demand conditions on ERPT for IT industrial and EM countries. Our results strongly suggest that, for the non-IT samples, ERPT is significantly higher in EM countries than industrial countries. For every country groups excluding Euro area countries, we find that ERPT declined substantially during the recent global disinflation period. The decline in the ERPT is, however, much higher in IT countries especially in EM ones. One striking result is the convergence of ERPT coefficients of EM countries to industrial IT countries with the adoption of IT. This supports the endogenous response of ERPT to monetary policy credibility and price stability. Consequently, a high ERPT, per se, may be interpreted as not a binding constraint for the adoption of IT as it tends to decline with the success of monetary policy regime. We also find that ERPT appears to be more sensitive to positive output gaps in IT industrial countries whilst it does not have such a response to positive or negative output gaps in IT emerging market countries.

Subject Keywords

Economics., Economic Theory.

URI

http://etd.lib.metu.edu.tr/upload/12611230/index.pdf
https://hdl.handle.net/11511/19101

Collections

Graduate School of Social Sciences, Thesis

Suggestions

OpenMETU
Core

Exchange Rate Regimes and Business Cycles: An Empirical Investigation Erdem, Fatma Pinar; Özmen, Erdal (2015-11-01) This paper empirically investigates the impacts of domestic and external factors along with exchange rate regimes (ERRs) on business cycles in a large panel of advanced and emerging market economies (EME). The results for classical business cycles suggest that EME tend to experience much deeper recessions and relatively steeper expansions during almost the same duration. The probability of expansions significantly increases with ERR flexibility. Our results strongly support floating ERR for both advanced an...
Price transmissions between food and oil Kaltalıoğlu, Müge; Soytaş, Uğur; Department of Business Administration (2010) The upward movement in oil and food prices in the 2000s has triggered interest in the information transmission mechanism between the two markets. This research investigates the volatility spillover between oil, food, and agricultural raw material price indexes for the period January 1980 to April 2008. The results of the Cheung-Ng procedure show that variation in oil prices does not Granger cause the variance in food and agricultural raw material prices. However, there is bi-directional spillover between ag...
Exchange Rate Uncertainty in Turkey and its Impact on Export Volume KASMAN, Adnan; KASMAN, Saadet (Orta Doğu Teknik Üniversitesi (Ankara, Turkey), 2005-6) This paper investigates the impact of real exchange rate volatility on Turkey’s exports to its most important trading partners using quarterly data for the period 1982 to 2001. Cointegration and error correction modeling approaches are applied, and estimates of the cointegrating relations are obtained using Johansen’s multivariate procedure. Estimates of the short-run dynamics are obtained through the error correction technique. Our results indicate that exchange rate volatility has a significant positive e...
Exchange Rate Regimes as Thresholds: The Main Determinants of Capital Inflows in Emerging Market Economies Özmen, Erdal (2019-06-14) This study investigates whether the impacts of the main common push (global financial conditions, GFC) and country-specific pull (growth) factors on capital inflows are invariant to the prevailing exchange rate regimes (ERRs) in emerging market economies. Our results suggest that endogenously estimated ERR thresholds do matter especially for the impact of GFC. The impact of GFC is substantially high under more flexible ERRs for all capital inflow types except FDI. FDI inflows are basically determined by the...
Inflation targeting and financial dollarization: an empirical investigation Gökten, Selin; Özmen, Erdal; Department of Economics (2008) This study investigates the implications of financial dollarization for inflation targeting framework. To this end, monetary policy rule, inflation targeting performance and international reserves equations are estimated for twenty four inflation targeting countries with different levels of financial dollarization. The results based on the panel data estimations indicate that monetary policy rule and behavior of accumulating international reserves are affected by the degree of financial dollarization. Furth...

Citation Formats

E. Gülşen, “Exchange rate pass-through and inflation targeting,” M.S. - Master of Science, Middle East Technical University, 2009.