In this study, determinants and the evolution of the exchange rate passthrough to domestic inflation in the Turkish economy is analyzed. The analyses cover the 1987-2003 period. In the analyses, single equation &ldquo / Error Correction Models&rdquo / are used to estimate the exchange rate pass-through. Estimation results suggest that alike other emerging countries, the degree of exchange rate passthrough to domestic prices is high and the pass-through is completed in a very short time span. Estimations results also indicates that the main factors to account for high pass-through are the past currency crises and the high degree of openness of the economy. These factors create the ground for the indexation behavior of agents. Although, above-mentioned factors are the main determinants of the degree of exchange rate pass-through, the persistency and the volatility of exchange rates can significantly affect the short run dynamics of the pass-through. The results imply that even if the pass-through slows down due to the changing pattern of exchange rates, to achieve the low and stable inflation in the long run, fundamental factors that exacerbate the link between exchange rates and prices should change.

This thesis investigates the exchange rate pass-through to consumer prices, and its non-linearity and asymmetry effect in Mongolia. The recursive VAR model and non-linear econometric model are applied using monthly data from January 2000 to December 2013. We find that exchange rate pass-through is high and incomplete both in the short and in the long run in Mongolia. There is a statistically significant asymmetry effect, which states that impact of exchange rate depreciation on consumer price is higher than appreciation. However, we do not find an evidence of non-linearity in consumer price reaction to the large and small absolute changes of the exchange rate relative to its sample average and median as a threshold level. Additionally, we estimate the importance of the exchange rate shock for the consumer price variation using variance decomposition technique. In spite of this relatively high pass through, the exchange rate shocks explain a relatively small percentage of the variation in CPI inflation. Powered by TCPDF (www.tcpdf.org)

Diss. Stockholm : Handelshögsk., 2001.

This work is focused on econometric analysis of inflation in the Czech Republic, there is also reported an analysis of inflation in Austria and continuity of both countries to the dominant German economy. The inflation with its forms and possibilities of measuring is described in the first part of this work. There is also mentioned the influence of Czech national bank on the inflation. Next, there is shown the impact of foreign exchange rates and inflation. Consequently there are described characteristics of time series, which are important from viewpoint of construction of econometric models. Next, there is described theory of econometrics analysis, focused on ordinary least squares method and method of instrumental variables. The empirical part contains econometric analysis of inflation itself, using models described in theoretical part. Moreover, this work includes other models, coming out of economic hypothesis. Firstly, it analyses inflation in Germany as the reference country. Secondly, further analysis performs inflation in the Czech Republic and Austria. Finally, an analysis based on ERPT (exchange rate pass-through) models is given. In conclusion, the results are well summarized and compared.

Thesis advisor: Georg Strasser / Exchange Rate Pass Through (ERPT) is the percentage change in a destination country’s import price given a percentage change in the exchange rate. A complete ERPT occurs when import price decreases by the same percentage as the depreciation of the exporting country’s currency and vice versa. In this paper I analyze ERPT in large and small open economies, and hypothesize that as destination economy size gets larger, ERPT will decrease. Reasons I provide to support this hypothesis are: the import share of exporters in destination economies, the demand elasticity that foreign exporters face, and the proportion of consumer demand to world demand that the foreign exporter faces. I find, with statistical significance, that ERPT decreases as the destination economy size increases. The main reason attributed to this inverse relationship is the import share of foreign exporters in destination economies. As import share of the foreign exporter increases, ERPT increases within those destination economies. Since foreign exporters have a higher chance of establishing a large import share in small economies than in large economies, they have a better chance of passing through exchange rate changes into destination country prices. / Thesis (BA) — Boston College, 2011. / Submitted to: Boston College. College of Arts and Sciences. / Discipline: Economics Honors Program. / Discipline: Economics.

Uma série de relações de simultaneidade definem a estrutura de determinação dos preços no agregado para uma economia aberta. Além destas inter-relações a natureza das variáveis, seguindo trajetória não estacionárias quando individualmente analisadas mas de equilíbrio no sentido de que se movimentam conjuntamente no longo prazo, faz com que a estrutura para a análise empírica da relação entre a taxa de câmbio e os preços consista em um sistema complexo sobre o qual tem relevância tanto a dinâmica de curto quanto a dinâmica de longo prazo entre das variáveis. O objetivo deste trabalho é manter-se coerente a este contexto para obter estimativas do repasse cambial de longo prazo para os preços da economia brasileira. Isto é possível utilizando o arcabouço metodológico dos modelos Vetores de Correção de Erros (VCE), sendo assim, a principal contribuição deste trabalho consiste na aplicação da metodologia dos modelos Estruturais de Vetores de Correção de Erros (SVCE), introduzidos em King et. al. (1991). Além disso o trabalho discute a identificação do repasse cambial a partir das funções de resposta ao impulso para variáveis não estacionárias, obtidas para os modelos VCE e SVCE, por meio das quais é possível identificar o longo prazo e contrastar os diferentes resultados para o repasse cambial obtidos de acordo com este arcabouço metodológico. / There is a series of simultaneous relations that define the structure of pricing determination in aggregate for an open economy. Besides these interrelations, the nature of the variables, following non-stationary trajectory when analyzed individually but in equilibrium in the sense that, in the long run they move together, causes the structure to the empirical analysis of the relationship between the exchange rate and prices consists in a complex system over which has relevance both the short-run and long-term dynamics between the variables. The objective of this work is to remain consistent in this context to obtaining estimates of long-term exchange pass-through to the aggregate prices of Brazilian economy. This is possible using the methodological framework of the Vector Error Correction models (VEC), inside which, the main contribution of this work consists in applying the methodology of Structural Vector Error Correction models (SVEC), introduced in King et. al. (1991). Furthermore, the paper discusses the identification of exchange rate pass-through using the impulse response functions for non-stationary variables, obtained for the VEC and SVEC models, through which it is possible to identify the long-term exchange rate pass-through and compare the different results obtained according to this methodological framework.

Expectations regarding the relationship between exchange rates and the prices of traded goOds in small open economies have traditionally been derived from the idea of the relative unimportance of a single small country when trading in much larger international markets. This concept has led to the use of distinct 'small-country' or 'dependent-economy' models to analyse the effects of macroeconomic changes. Thus for small economies like Australia, it is usually assumed that the foreign-currency prices of traded goods are fixed in perfectly competitive international markets. Accordingly, exchange rate movements must be completely absorbed in domestic-currency prices. In other words, the pass-through of exchange rate changes to destination-currency prices must be zero for Australian exports, and complete for Australian imports. Such expectations regarding the degree of exchange rate pass-through contrast sharply with those found in conventional macroeconomic models for large countries, in which pass-through is assumed to be complete for all traded goods. Moreover, they conflict with the results derived from the large theoretical and empirical literature on the microeconomic determinants of pass-through, which suggests that much international trade takes place in imperfectly competitive markets, in which the degree of less-than-complete pass-through depends on industry-specific factors. This study explores these apparent conflicts by re-examining the small-country assumption, with particular emphasis on export prices as the area of greatest divergence. Specifically, it addresses three research questions: 1) What are the theoretical conditions that underlie the small-country assumption? 2)What are the implications for the macroeconomic models of small economies if this assumption is violated? 3) In practice, is the data more consistent with the validity or otherwise of the assumption? The analysis focuses on Australia as a practical example of a small open economy with a high proportion of commodity exports. In summary, the theoretical and empirical results reported in this study suggest that the small-country assumption is unlikely to hold in practice. That is, exchange rate pass-through is more likely to be determined by industry-specific factors, rather than by the universal conclusion of zero pass-through for all Australian exports that is derived from the small-country assumption. Further, they imply that the movement in internal prices required to restore equilibrium in a small country following an external shock is likely to be both larger and more uncertain than has previously been expected. Under such circumstances, the full flexibility of the exchange rate, as the primary and most rapid source of the required adjustments, becomes particularly significant. An important policy implication for small open economies that are subject to frequent terms of trade shocks, such as Australia, is that attempts to manage the exchange rate in order to reduce apparently excessive movements may in fact result in a longer and more protracted process of adjustment through the labour market.

The dissertation consists of three essays on Dutch Disease and exchange rate pass-through. Dutch Disease refers to the adverse effects of the natural resource booms on the tradable sectors (manufacturing industries) which may occur mainly through the subsequent appreciation of the real exchange rate.<p> The first essay aims to investigate whether Canadian manufacturing industries have experienced Dutch Disease over the period 1992-2007 as a result of the oil boom. After a review of the literature and discussion of the theoretical considerations, the paper presents a two part empirical analysis to estimate the short- and long-run Dutch Disease effects for the Canadian manufacturing industries at three, four and few cases of five-digit levels of NAICS (about 80 industries), using quarterly data. The first part of the empirical analysis estimates the relationship between real exchange rate and energy prices as well as the other related factors and the second part estimates the effect of real exchange rate on output of the manufacturing industries. Based on these two estimated relationships, the Dutch Disease effect is derived by calculating the effect of energy prices on output of the manufacturing industries. The results indicate that the direction and magnitude of the Dutch Disease effect varies substantially across industries likely, as theory explains, because of differences in market structure in terms of the market power. Specifically, 53 out of the 80 industries suffer from the Dutch Disease with the elasticity of -0.18 in average, while Dutch Disease is beneficial for 24 industries with the elasticity of 0.21 in average. The simulation results reveal that, among the industries suffering (benefiting) from the Dutch Disease, each industry could have more annual output growth by 0.93 (-1.07) percent in average if energy prices remained at its level in 1992. This simulated value for the whole sample is 0.30 percent which is significant compared to 2.8 percent as the average of annual industrial production growth during 1992-2007.<p> The second and third essays together aim to model and estimate the degree of exchange rate pass-through into Canadian producer prices in manufacturing industries. The second essay, as a theoretical one, presents a literature review and contributes to the literature by developing a relatively more general theoretical framework. The provided model, which extends Yangs model (1997) by incorporating the role of the tradable inputs, is able to show all the major determinants of exchange rate pass-through together, while the previous studies have only analyzed the role of one or some of these factors. Specifically, the theoretical model indicates that the exchange rate pass-through should be between one and zero, while it is positively affected by the share of tradable inputs in total cost, and the domestic firms' market share and negatively by the elasticity of marginal cost with respect to output. The sign for the degree of substitutability among the variants is not theoretically clear and remains as an empirical question.<p> Finally, the third essay presents the empirical framework for estimation of the exchange rate pass-through and its determinants in Canadian manufacturing industries. In this essay, the short- and long-run exchange rate pass-through elasticities to the domestic producer prices are estimated for the industries at three, four and few cases of five-digit levels of NAICS (about 100 industries), using quarterly data from 1992-2007. Then, the pass-through variation across industries is explained by regressing the estimated pass-through elasticities on the variables that are hypothesized to affect the pass-through elasticities according to the developed theoretical model. The results indicate that incomplete pass-through is observed in most cases although its magnitude is different across industries. The average short- and long-run pass-through elasticities are 0.24 and 0.36 respectively. The share of intermediate materials, as the tradable inputs, in production costs (with positive effect) and the elasticity of marginal cost with respect to output (with negative effect) are the most important determinants of the exchange rate pass-through across industries.

The dissertation consists of three essays on Dutch Disease and exchange rate pass-through. Dutch Disease refers to the adverse effects of the natural resource booms on the tradable sectors (manufacturing industries) which may occur mainly through the subsequent appreciation of the real exchange rate.<p> The first essay aims to investigate whether Canadian manufacturing industries have experienced Dutch Disease over the period 1992-2007 as a result of the oil boom. After a review of the literature and discussion of the theoretical considerations, the paper presents a two part empirical analysis to estimate the short- and long-run Dutch Disease effects for the Canadian manufacturing industries at three, four and few cases of five-digit levels of NAICS (about 80 industries), using quarterly data. The first part of the empirical analysis estimates the relationship between real exchange rate and energy prices as well as the other related factors and the second part estimates the effect of real exchange rate on output of the manufacturing industries. Based on these two estimated relationships, the Dutch Disease effect is derived by calculating the effect of energy prices on output of the manufacturing industries. The results indicate that the direction and magnitude of the Dutch Disease effect varies substantially across industries likely, as theory explains, because of differences in market structure in terms of the market power. Specifically, 53 out of the 80 industries suffer from the Dutch Disease with the elasticity of -0.18 in average, while Dutch Disease is beneficial for 24 industries with the elasticity of 0.21 in average. The simulation results reveal that, among the industries suffering (benefiting) from the Dutch Disease, each industry could have more annual output growth by 0.93 (-1.07) percent in average if energy prices remained at its level in 1992. This simulated value for the whole sample is 0.30 percent which is significant compared to 2.8 percent as the average of annual industrial production growth during 1992-2007.<p> The second and third essays together aim to model and estimate the degree of exchange rate pass-through into Canadian producer prices in manufacturing industries. The second essay, as a theoretical one, presents a literature review and contributes to the literature by developing a relatively more general theoretical framework. The provided model, which extends Yangs model (1997) by incorporating the role of the tradable inputs, is able to show all the major determinants of exchange rate pass-through together, while the previous studies have only analyzed the role of one or some of these factors. Specifically, the theoretical model indicates that the exchange rate pass-through should be between one and zero, while it is positively affected by the share of tradable inputs in total cost, and the domestic firms' market share and negatively by the elasticity of marginal cost with respect to output. The sign for the degree of substitutability among the variants is not theoretically clear and remains as an empirical question.<p> Finally, the third essay presents the empirical framework for estimation of the exchange rate pass-through and its determinants in Canadian manufacturing industries. In this essay, the short- and long-run exchange rate pass-through elasticities to the domestic producer prices are estimated for the industries at three, four and few cases of five-digit levels of NAICS (about 100 industries), using quarterly data from 1992-2007. Then, the pass-through variation across industries is explained by regressing the estimated pass-through elasticities on the variables that are hypothesized to affect the pass-through elasticities according to the developed theoretical model. The results indicate that incomplete pass-through is observed in most cases although its magnitude is different across industries. The average short- and long-run pass-through elasticities are 0.24 and 0.36 respectively. The share of intermediate materials, as the tradable inputs, in production costs (with positive effect) and the elasticity of marginal cost with respect to output (with negative effect) are the most important determinants of the exchange rate pass-through across industries.

Zugl.: Vallendar, WHU - Otto Beisheim School of Management, Diss., 2008