Exchange Rate Pass-through to Consumer Prices in Pakistan: Does Misalignment Matter?

Jaffri, Atif Ali

doi:10.30541/v49i1pp.19-35

Cited by 10 publications

(4 citation statements)

References 39 publications

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“…To measure ERPT to domestic prices, we modify the import Equation ( 6) following Jaffri (2010). We assume that a basket of goods consumed in the domestic economy is a function of domestic and imported goods.…”

Section: Theoretical Framework and Methodsmentioning

confidence: 99%

Asymmetric Exchange Rate Pass Through to Consumer Prices: Evidence from Zambia

Fandamu

Ndulo

Mudenda

et al. 2023

Foreign Trade Review

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The purpose of this study was to examine the asymmetric exchange rate pass through (ERPT) to consumer price inflation in Zambia. We examined ERPT to consumer price inflation arising from kwacha depreciation and appreciation for the period between the first quarter of 1985 to the fourth quarter of 2017. We employed the structural vector autoregressive model. The results showed that ERPT to consumer price inflation is incomplete and asymmetric. Consumer prices in Zambia are more responsive to kwacha depreciation than to appreciation. The depreciation of the kwacha has a greater significant impact on consumer prices than the appreciation of the kwacha. The impulse response function analysis showed that the shock to kwacha depreciation is very persistent than that of kwacha appreciation. Finally, the forecast error variance decomposition showed that a depreciation shock explains a bigger portion of the variance in consumer price inflation than an appreciation shock. These findings show that kwacha depreciation and appreciation have different effects on consumer price inflation, thereby confirming the presence of asymmetries in the ERPT. The study also accounted for the effect of commodity price booms in influencing ERPT. However, results of ERPT did not change much with the inclusion of commodity price booms. JEL Codes: E31, F31

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Section: Theoretical Framework and Methodsmentioning

confidence: 99%

Asymmetric Exchange Rate Pass Through to Consumer Prices: Evidence from Zambia

Fandamu

Ndulo

Mudenda

et al. 2023

Foreign Trade Review

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“…By following the literature on inflation (Kamin, 1997;Marc & Kalau, 1998;Jaffri, 2010), the model developed as follows (A) According to Marc and Kalau (1998) and Comunale (2017), we can use the following relationship, (B) CAGAP, exchange rate, and economic growth are economically linked to one another, and it is undeniable that currency misalignment arises from internal and external imbalances (Gnimassoun et al, 2013 andComunale, 2017). Since Therefore, by using the above relationships and putting in (A) for panel data The consumer price index covers many items of daily use, so it is considered a better measure of price changes from the consumer point of view.…”

Section: Methodsmentioning

confidence: 99%

Impact of Current Account Gaps on Inflation in South Asian Countries

Ahmad

Jaffri

Rana

et al. 2021

HSSR

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Purpose of the study: The current study estimated the impact of current account gaps (CAGAP) on inflation in South Asian countries, namely, Pakistan, Bangladesh, India, Nepal, and Sri Lanka. Methodology: CAGAP is estimated through macroeconomic fundamentals by applying panel time series data methodology from 1990 to 2018. We adopted the bias-corrected least square dummy variable (LSDVC) estimation technique for the time series macro and dynamic panel to find the impact of CAGAP on inflation. Principal findings: CAGAP negatively affected consumer price inflation rate while Lag of inflation, trade openness, age dependency, and oil prices positively affected inflation rate in the selected sample countries. In LSDVC, the Blundell and Bond (BB), Arellano-Bond (AB), Anderson and Hsiao (AH) estimates are determined while system and difference GMM estimates also confirmed the results. Therefore, LSDVC-AB is selected from the three versions of LSDVC as baseline regression based on higher significance and lower standard error. Applications of the Study: CAGAP affects inflation, so it should be estimated annually in all these countries for macroeconomic stability as IMF annually estimates for developed countries in an external sector report. It is worthwhile to estimate CAN regularly and watch it for CAB evaluation and future Adjustment. Based on the results, the study recommends that tailored policies and interventions focus on the structural distortions and slow-changing factors to eradicate CAGAP. Novelty/ Originality of the Study: A few empirical studies have scrutinized the role of CAB on macroeconomic variables. No empirical study on CAGAP and its consequences are available in the selected region's existing literature to the best of our knowledge.

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“…The Pak Rupee is being depreciated against US dollar by 74.5% from July 2007 to November 2017 and by 57% from November 2017 to June 2020. Previous literature for Pakistan has provided empirical evidence of ERPT at aggregate level or core and food inflation, and impact of exchange rate on net exports in separate studies (Jaffri, 2010;Hanif, 2012;SBP, 2007;Yasmeen et al, 2018). Consumer Price Index (CPI) is calculated by Pakistan Bureau of Statistics (PBS) taking 487 items from 40 cities and 76 markets of the country.…”

Section: Introductionmentioning

confidence: 99%

An Empirical Study on Asymmetric Exchange Rate Pass-Through to Sectorial Inflation of Pakistan

Shahzad,

Jaffri,

Fatima

2023

ASSAP

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This study empirically examined the exchange rate pass through (ERPT) in sectoral inflation of Pakistan for the period 2007M6 to M62018 by applying the Ordinary Least Square (OLS) model. The study has used consistent monthly data with 2007-08 base year. The empirical results showed that due to 1 percentage point increase in depreciation of Pak rupee against US dollar, monthly transport inflation increased by 0.90 percentage points, monthly restaurant inflation increased by 0.78 percentage points, monthly food inflation increased by 0.27 percentage points and monthly housing inflation increased by 0.32 percentage points in the long run. It means that exchange rate has positive and significant effect on monthly transport inflation, monthly restaurant inflation, monthly food inflation and monthly housing inflation. All required diagnostic tests have been performed to verify that there is no heteroscedasticity, no autocorrelation, stability of model, and normality of estimated residuals. The study concluded that ERPT may be estimated for inflation in sub-indices of CPI as a regular practice by monetary authorities to rationalize asymmetric effects of depreciation on different sectors of the economy

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Exchange Rate Pass-through to Consumer Prices in Pakistan: Does Misalignment Matter?

Cited by 10 publications

References 39 publications

Asymmetric Exchange Rate Pass Through to Consumer Prices: Evidence from Zambia

Asymmetric Exchange Rate Pass Through to Consumer Prices: Evidence from Zambia

Impact of Current Account Gaps on Inflation in South Asian Countries

An Empirical Study on Asymmetric Exchange Rate Pass-Through to Sectorial Inflation of Pakistan

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