Price Adjustment and Exchange Rate Pass-through

Devereux, Michael B.; Yetman, James

doi:10.2139/ssrn.779846

Cited by 42 publications

(45 citation statements)

References 49 publications

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“…They also report that for high inflation regimes, the effect of monetary shocks is more persistent and likely to be reflected in exchange rates, thus concluding that the exchange rate pass-through would be larger in high inflation regimes. For countries with very high inflation rates, Devereux and Yetman (2002) find, as in Choudhri and Hakura (2001), that aggregate pass-through is extremely high. They also report a nonlinear relationship between the estimated pass-through coefficient and average inflation rates.…”

Section: Literature Reviewmentioning

confidence: 59%

Exchange Rate Pass-Through and Inflation Dynamics in Tunisia: A Markov-Switching Approach

Khemiri

Ali

2013

Economics

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This paper studies the effect of exchange rate pass-through on inflation in Tunisia for the period 2001 to 2009. The objective is to track inflation regimes for the Tunisian economy and to forecast its determinants. Using a Markov-switching approach, the authors identified two main regimes for inflation in Tunisia during this period: a low and stable inflation regime associated with a low pass-through level and a high inflation regime associated with a high pass-through level. To highlight the mechanisms underlying shifts in inflation regimes, the authors used a time-varying probabilities approach and identified a set of variables to assess their effects on inflation in Tunisia. The results show that the price level decreases in response to an increase in interest rates. Along with this, the empirical results provide strong evidence that the industrial production index has a negative and significant effect, as it increases the probability to stay in an inflationary regime and remain at a high pass-through level. The results also show robust support for the hypothesis that the imports increase the probability to stay in a high-inflation regime and maintain a high pass-through level. However, exports increase the probability of staying in a low-inflation regime and maintaining a low pass-through level. JEL G15 F3 F4

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Section: Literature Reviewmentioning

confidence: 59%

Exchange Rate Pass-Through and Inflation Dynamics in Tunisia: A Markov-Switching Approach

Khemiri

Ali

2013

Economics

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“…Devereux and Yetman (2002) apply a menu-cost model to the endogenous determination of passthrough. Burstein, Eichenbaum, and Rebelo (2003) includes another sticky-price model.…”

Section: Hypotheses To Be Testedmentioning

confidence: 99%

“…Devereux and Yetman (2002) have 122 countries in their sample, and Barhoumi (2005) studies pass-through to import prices in 24 developing countries. But these are all studies of influences on aggregate price measures, the CPI in particular, not on import prices.…”

Section: Introductionmentioning

confidence: 99%

Slow Passthrough Around the World: A New Import for Developing Countries?

Frankel¹,

Parsley²,

Wei³

2005

106

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Developing countries traditionally exhibit passthrough of exchange rate changes that is greater and more rapid than high-income countries, but have experienced a rapid downward trend in recent years in the degree of short-run passthrough, and in the adjustment speed. As a consequence, slow and incomplete passthrough is no longer exclusively a luxury of industrial countries. Using a new data set prices of eight narrowly defined brand commodities, observed in 76 countries we find empirical support for some of the factors that have been hypothesized in the literature, but not for others. Significant determinants of the passthrough coefficient include per capita incomes, bilateral distance, tariffs, country size, wages, long-term inflation, and long-term exchange rate variability.Some of these factors changed during the 1990s. Part (and only part) of the downward trend in passthrough to imported goods prices, and in turn to competitors' prices and the CPI, can be explained by changes in the monetary environment. Real wages also work to reduce passthrough to competitors' prices and the CPI, confirming the hypothesized role of distribution and retail costs in pricing to market. Rising distribution costs, due perhaps to the Balassa-Samuelson-Baumol effect, could contribute to the decline in the passthrough coefficient in some developing countries.

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“…Probability of receiving a price change signal is given by 1 ( 2 [0; 1]). It is assumed to be identical to all (both LCP and PCP) …rms 14 . Since there is a continuum of …rms, 1 also represents the share of …rms that has received such a signal and, consequently, got an opportunity to change their prices.…”

Section: Discussionmentioning

confidence: 99%