Exchange Rate Pass-Through in Candidate Countries

37 Pages Posted: 2 Jun 2003

See all articles by Fabrizio Coricelli

Fabrizio Coricelli

University of Siena - Department of Political and International Sciences ; Paris School of Economics (PSE); Centre for Economic Policy Research (CEPR)

Bostjan Jazbec

University of Ljubljana - Faculty of Economics

Igor Masten

University of Ljubljana - Faculty of Economics

Date Written: May 2003

Abstract

In this Paper we analyse the link between the choice of exchange rate regime and inflationary performance in four EU accession countries: the Czech Republic, Hungary, Poland and Slovenia. Estimation of pass-through effect of exchange rate changes to CPI inflation is complemented by I(2) co-integration analysis of stochastic nominal trends. The results allow a clear ranking of countries according to the size of the pass-through effect and the importance of exchange rate shocks to overall inflationary performance. In particular, we find that perfect pass-through effect can be associated with accommodative exchange rate policy, which can moreover become the most important source of inflationary pressures. The analysis suggests that for CEEC-4 the early adoption of the euro can provide the most efficient framework for reducing inflation.

Keywords: I(2) co-integration analysis, EMU accession, pass-through effect

JEL Classification: C32, E42, E52, E58

Suggested Citation

Coricelli, Fabrizio and Jazbec, Bostjan and Masten, Igor, Exchange Rate Pass-Through in Candidate Countries (May 2003). Available at SSRN: https://ssrn.com/abstract=412802

Fabrizio Coricelli (Contact Author)

University of Siena - Department of Political and International Sciences ( email )

Via Mattioli, 10
Siena, 53100
Italy

Paris School of Economics (PSE)

48 Boulevard Jourdan
Paris, 75014 75014
France

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Bostjan Jazbec

University of Ljubljana - Faculty of Economics ( email )

Kardeljeva ploscad 17
Ljubljana, 1000
Slovenia
+386 1 5892 623 (Phone)
+ 386 1 5892 698 (Fax)

Igor Masten

University of Ljubljana - Faculty of Economics ( email )

Kardeljeva ploscad 17
Ljubljana, 1000
Slovenia

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