Emerging floaters: pass-throughs and (some) new commodity currencies
Kohlscheen, Emanuel (2009) Emerging floaters: pass-throughs and (some) new commodity currencies. Working Paper. Coventry: University of Warwick, Department of Economics. (Warwick economic research papers).
WRAP_Kohlscheen_twerp_905.pdf - Requires a PDF viewer such as GSview, Xpdf or Adobe Acrobat Reader
Official URL: http://www2.warwick.ac.uk/fac/soc/economics/resear...
In spite of early skepticism on the merits of floating exchange rate regimes in emerging markets, 8 of the 25 largest countries in this group have now had a floating exchange rate regime for more than a decade. Using parsimonious VAR specifications covering the period of floating exchange rates, this study computes the dynamics of exchange rate pass-throughs to consumer price indices. We find that pass-throughs have typically been moderate even though emerging floaters have seen considerable nominal and real exchange rate volatilities. Previous studies that set out to estimate exchange rate pass-throughs ignored changes in policy regimes, making them vulnerable to the Lucas critique. We find that, within the group of emerging floaters, estimated pass-throughs are higher for countries with greater nominal exchange rate volatilities and that trade more homogeneous goods. These findings are consistent with the pass-through model of Floden and Wilander (2006) and earlier findings by Campa and Goldberg (2005), respectively. Furthermore, we find that the Indonesian Rupiah, the Thai Baht and possibly the Mexican Peso are commodity currencies, in the sense that their real exchange rates are cointegrated with international commodity prices.
|Item Type:||Working or Discussion Paper (Working Paper)|
|Subjects:||H Social Sciences > HG Finance
H Social Sciences > HB Economic Theory
|Divisions:||Faculty of Social Sciences > Economics|
|Library of Congress Subject Headings (LCSH):||Foreign exchange rates, Consumer price indexes, Commodity exchanges, Futures market|
|Series Name:||Warwick economic research papers|
|Publisher:||University of Warwick, Department of Economics|
|Place of Publication:||Coventry|
|Number of Pages:||51|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
|References:|| Andrews, D.W.K. (1991) Heteroskedasticity and autocorrelation consistent covariance matrix estimation. Econometrica 59, 817-58.  Borensztein, E., and de Gregorio, J. (1999) Devaluation and inflation after currency crises. International Monetary Fund (mimeo).  Calvo, G.A., and C.M. Reinhart (2000) Fixing for your life. NBER Working Paper 8006.  Calvo, G.A., and C.M. Reinhart (2002) Fear of floating. Quarterly Journal of Economics 117, 379-408.  Campa, J.M., and L.S. Goldberg (2001) Exchange rate pass-through into import prices: a macro or a micro phenomenon? Federal Reserve Bank of New York. (mimeo)  Campa, J.M., and L.S. Goldberg (2005) Exchange rate pass-through into import prices. The Review of Economics and Statistics 87, 4, 679-90.  Cashin, P., L.F. Cespedes and R. Sahay (2004) Commodity currencies and the real exchange rate. Journal of Development Economics 75, 239- 68.  Ca’Zorzi, Hahn and Sanchez (2007) Exchange rate pass-through in emerging markets. European Central Bank. Working paper 739.  Chen, Y., and K. Rogoff (2003) Commodity currencies and empirical exchange rate puzzles. Journal of International Economics 60, 133-60.  Choudhri, E.U., and D.S. Hakura (2006) Exchange rate pass-through to domestic prices: does the inflationary environment matter? Journal of International Money and Finance 25, 614-639.  Devereux, M.B., and C. Engel (2002) Exchange rate pass-through, exchange rate volatility and exchange rate disconnect. Journal of Monetary Economics 49, 913-40.  Dornbusch, R. (1987) Exchange rates and prices. American Economic Review 77, 93-106.  Engel, C. (1996) The forward discount anomaly and the risk premium: a survey of recent evidence. Journal of Empirical Finance 3, 123-92.  Frankel, J., Parsley, andWei (2005) Slow pass-through around the world: a new import for developing countries? JFK School of Government, RWP 05-016.  Floden, M, and F. Wilander (2006) State-dependent pricing, invoicing currency, and exchange rate pass-through. Journal of International Economics 70, 178-96.  Froot, K., and P. Klemperer (1989) Exchange rate pass-through when market share matters. American Economic Review, 637-54.  Gagnon, J., and J. Ihrig (2004) Monetary policy and exchange rate passthrough. International Journal of Finance and Economics 9, 315-38.  Goldfajn, I., and S.R.C. Werlang (2000) The pass-through from depreciation to inflation: a panel-study. Departamento de Economia, Puc-Rio. Texto para discussao 424.  Gopinath, G., and O. Itskhoki (2009) Frequency of price adjustment and pass-through. Quarterly Journal of Economics (forthcoming).  Gregory, A., and B. Hansen (1996) Tests for cointegration in models with regime and trend shifts. Oxford Bulletin of Economics and Statistics 58, 555-60.  Hansen, B. (1992) Tests for parameter stability in regressions with I(1) processes. Journal of Business and Economic Statistics 10, 321-35.  Hau, H. (2000) Exchange rate determination: the role of factor price rigidities and nontradeables. Journal of International Economics 50, 421-47.  Hau, H. (2002) Real exchange rate volatility and economic openess: theory and evidence. Journal of Money, Credit and Banking 34, 3, 611- 30.  Haug, A. (1992) Critical values for the Zα Phillips-Ouliaris test for cointegration. Oxford Bulletin of Economics and Statistics 54, 345-51.  Krugman, P. (1987) Pricing to market when the exchange rate changes in Arndt and Richardson (eds.) Real Financial Linkages Among Open Economies, 49-70. MIT Press, Cambridge/MA.  Krugman, P. (1989) Exchange rate instability. MIT Press. Cambridge, MA.  Kwiatwoski, D., P.C.B. Phillips, P. Schmidt, and Y. Shin (1992) Testing the null hypothesis of stationarity against the alternative of a unit root: how sure are we that economic time series have a unit root? Journal of Econometrics 54, 159-78.  MacKinnon, J. (1991) Critical values for cointegration tests. In: Engle, R. and Granger, C. (eds.) Long Run Economic Relationships: Readings in Cointegration. Oxford Univ. Press, Oxford, 267-76.  MacKinnon, J., A. Haug, and L. Michelis (1999) Numerical distribution functions of likelihood ratio tests for cointegration. Journal of Applied Econometrics 14, 5, 563-77.  McCarthy, J. (2000) Pass-through of exchange rates and import prices to domestic inflation in some industrialized countries. Federal Reserve Bank of New York Staff Report 111.  Phillips, P.C.B., and B. Hansen (1990) Statistical inferences in instrumental variables regression with I(1) processes. Review of Economic Studies 57, 99-125.  Phillips, P.C.B., and S. Ouliaris (1990) Asymptotic properties of residual-based tests for cointegration. Econometrica 58, 165-93.  Obstfeld, M., and K. Rogoff (2000) New directions in open macroeconomics. Journal of International Economics 50, 117-53.  Reinhart, C.M. (2000) The mirage of floating exchange rate regimes. American Economic Review Papers & Proceedings, 65-70.  Reinhart, C.M., and K. Rogoff (2004) The modern history of exchange rate arrangements: a reinterpretation. Quarterly Journal of Economics 119, 1, 1-48.  Taylor, J. (2000) Low inflation, pass-through, and the pricing power of firms. European Economic Review 44, 7, 1389-1408.|
Actions (login required)