BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 2/2005:
A note on exchange rate pass-through in CIS countries
Iikka Korhonen ()
and Paul Wachtel
Abstract: We assess the extent and speed of exchange rate
pass-through in the countries of the Commonwealth of Independent States
(CIS). We do this in the framework of vector autoregressive regressions,
utilising impulse functions and variance decompositions with monthly data
that starts in 1999 in order to avoid periods of very high inflation and
the Russian crisis. We find that exchange rate movements have a clear
impact on price developments in the CIS countries. The speed of the
pass-through is also fairly high: in most cases the full effect is
transmitted into domestic prices in less than 12 months. Unlike in many
other emerging market economies, an additional effect from US prices on to
domestic prices is not significant. The extent of the exchange rate
pass-through is usually much higher than in our benchmark group of emerging
market countries. Variance decomposition shows that the relative share of
exchange rates in explaining changes in domestic prices is higher in the
CIS countries than in the benchmark group. Our results indicate that
policy-makers in the CIS countries need to pay more attention to exchange
rate movements than in many other emerging market countries.
Keywords: exchange rate pass-through; inflation; exchange rate regime; transition countries; (follow links to similar papers)
JEL-Codes: E31; E42; F31; F42; (follow links to similar papers)
28 pages, June 10, 2005
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