Exchange Rate Pass-Through in Developing and Emerging Markets: A Survey of Conceptual,Methodological and Policy Issues,and Selected Empirical Findings |
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| Authors: | Janine Aron Ronald Macdonald John Muellbauer |
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| Affiliation: | 1. Institute for New Economic Thinking at the Oxford Martin School, University of Oxford, Oxford, UKjanine.aron@economics.ox.ac.uk;3. Department of Economics, Adam Smith Building, University of Glasgow, Glasgow, UK;4. Institute for New Economic Thinking at the Oxford Martin School, University of Oxford, Oxford, UK;5. Nuffield College, University of Oxford, and Institute for New Economic Thinking at the Oxford Martin School, University of Oxford, Oxford, UK |
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| Abstract: | AbstractGlobal integration has increased the international linkages of financial markets for emerging market countries. A key channel for the international transmission of inflation and economic cycles is from exchange rate movements to domestic prices, known as exchange rate pass-through (ERPT). This article reviews the conceptual, methodological and policy issues connected with ERPT in emerging market and developing countries, and critically surveys selected empirical studies. A key contribution is to categorise and compare the heterogeneous methodologies used to extract ERPT measures in the empirical literature. Single equation models and systems methods are contrasted; frequent misspecifications that produce unreliable ERPT estimates are highlighted. The discerning policy-maker needs to ascertain by which methods ERPT measures were calculated, the controls and restrictions applied, and the time frame and stability of the estimates. |
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