Exchange Rate Pass-Through in ASEAN: Implications for the Prospects of Monetary Integration in the Region

Cortinhas, Carlos

doi:10.2139/ssrn.958672

Cited by 14 publications

(8 citation statements)

References 42 publications

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“…The theory of exchange rate pass-through has developed from a debate over the failure of the law of one price and purchasing power parity to the foundation of industrial organization models and pricing to market (Cortinhas 2009). More recently, debates have emerged over the appropriate monetary policy and the optimal choice of exchange rate regime, which stem from substantial empirical evidence on the limited pass-through of nominal exchange rate movements.…”

Section: Literature Reviewmentioning

confidence: 99%

Exchange Rate Pass-Through in ASEAN Countries: An Application of the SVAR Model

Quan

Phúc

Minh

et al. 2018

Emerging Markets Finance and Trade

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Central banks in emerging countries generally question the effect of exchange rate passthrough into price levels in the national economy in order to implement monetary policy effectively. This paper is conducted in response to these macroeconomic concerns. Five founding members of the Association of Southeast Asian Nations (ASEAN), for which all the required data are available, are included in our sample with up-to-date time-series data until 2016. We use a structural vector autoregressive model in this study. Several interesting findings emerged from our study. First, we find incomplete exchange rate pass-through to domestic prices, and the producer price index is found to be affected more than the consumer price index. Second, the exchange rate shocks are found to have an immediate effect within one quarter on producer prices in all the countries. Third, variance in domestic prices is found to be caused mainly by shocks from oil prices, output gaps, and exchange rates, with some differences in the extent of effects across countries. Fourth, in these five countries, interest rates appear to play a minor role in explaining the inflation rate. We recommend that policy makers pursuing price stability in the economy focus on exchange rates and interest rate policy with great caution.

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Section: Literature Reviewmentioning

confidence: 99%

Exchange Rate Pass-Through in ASEAN Countries: An Application of the SVAR Model

Quan

Phúc

Minh

et al. 2018

Emerging Markets Finance and Trade

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“…The empirical work of Ito and Sato (2006), covering the period of 1993 to 2005, seems to demonstrate that pass-through to the consumer price index (CPI) is relatively low compared with that to the producer price index (PPI) in Indonesia, Thailand, Malaysia, Singapore, and South Korea. Cortinhas (2007) also investigates pass-through in five ASEAN countries over the period of 1968 to 2001 and finds that exchange rates disconnect from pass-through in Singapore and Malaysia, while the Philippines and Thailand exhibit some evidence of pass-through. 3 In addition, extant empirical evidence concerning exchange rate volatility in Asian countries focuses mainly on its impact on trade (see, e.g., Rahmatsyah et al, 2002;Siregar & Rajan, 2004;Baak et al, 2007).…”

Section: Introductionmentioning

confidence: 99%

Exchange rates, price levels, and inflation targeting: Evidence from Asian countries

Prasertnukul¹,

Kim

Kakinaka

2010

Japan and the World Economy

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This study examines how the adoption of inflation-targeting influenced exchange rate pass-through and volatility in four Asian countries (Indonesia, Korea, the Philippines, and Thailand) over the sample period of January 1990 to June 2007. We find that reforming policy by adopting inflation targeting generally helped reduce pass-through in Korea and Thailand, while the results are less clear in Indonesia and the Philippines. Still, the findings indicate that inflation targeting has caused a decline in exchange rate volatility in all four countries. The important lesson from the experiences of these Asian countries is that the adoption of inflation targeting contributes to achieving the ultimate goal of inflation stability through reducing exchange rate pass-through or variability.

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“…In Asia region, there are only a few studies on ERPT. Cortinhas (2007) investigates the degree of exchange rate pass-through to domestic price in all five members of ASEAN. While there is no evidence of exchange rate pass-through to import prices in Philippines, Thailand exhibits a clear case of exchange rate pass-through to import prices.…”

Section: Literature Reviewmentioning

confidence: 99%

Exchange Rate Pass-Through (ERPT) and its Implications for Vietnam: Vector Autoregressive Approach from Vietnam-Korea Trade Data

Huong

Minh

2019

Asian Economic and Financial Review

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This article investigates the exchange rate pass-through (ERPT) into Vietnam's import price and consumer price index employing the trade data between Vietnam and Korea for the period from Jan 2008 -March 2017 on a monthly basis. From the empirical outcome of the Vector Autoregressive (VAR) model, the ERPT coefficients for import price are quite low and statistically insignificant, which implies that the price of importing goods from Korea might depend mainly on other factors rather than KRW/VND exchange rate. On the contrary, the transmission from exchange rate to Vietnam's consumer price index is so complete that a 1% shock in exchange rate can cause a change by 0.994% in consumer price index at lag order 2. This result is further confirmed by variance decomposition and Granger causality tests which reveal that the exchange rate shock builds the strongest influence on the fluctuation of Vietnam's inflation rate. Contribution/ Originality:This study is one of the first time series studies using the trade data between Vietnam and Korea to investigate ERPT into import prices and inflation in Vietnam. It also contributes to the limited critical review in this domain for the developing countries in South East Asia.

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Exchange Rate Pass-Through in ASEAN: Implications for the Prospects of Monetary Integration in the Region

Cited by 14 publications

References 42 publications

Exchange Rate Pass-Through in ASEAN Countries: An Application of the SVAR Model

Exchange Rate Pass-Through in ASEAN Countries: An Application of the SVAR Model

Exchange rates, price levels, and inflation targeting: Evidence from Asian countries

Exchange Rate Pass-Through (ERPT) and its Implications for Vietnam: Vector Autoregressive Approach from Vietnam-Korea Trade Data

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