Exchange rate pass-through in developing and emerging markets: a survey of conceptual, methodological and policy issues, and selected empirical findings

Aron, J., MacDonald, R. and Muellbauer, J. (2014) Exchange rate pass-through in developing and emerging markets: a survey of conceptual, methodological and policy issues, and selected empirical findings. Journal of Development Studies, 50(1), pp. 101-143. (doi: 10.1080/00220388.2013.847180)

Abstract

Global integration has increased the international linkages of financial markets for emerging market countries. A key channel for the international transmission of inflation and economic cycles is from exchange rate movements to domestic prices, known as exchange rate pass-through (ERPT). This article reviews the conceptual, methodological and policy issues connected with ERPT in emerging market and developing countries, and critically surveys selected empirical studies. A key contribution is to categorise and compare the heterogeneous methodologies used to extract ERPT measures in the empirical literature. Single equation models and systems methods are contrasted; frequent misspecifications that produce unreliable ERPT estimates are highlighted. The discerning policy-maker needs to ascertain by which methods ERPT measures were calculated, the controls and restrictions applied, and the time frame and stability of the estimates.

• Item Type: Articles
• Status: Published
• Refereed: Yes
• Glasgow Author(s) Enlighten ID: MacDonald, Professor Ronald
• Authors: Aron, J., MacDonald, R., and Muellbauer, J.
• College/School: College of Social Sciences > Adam Smith Business School > Economics
• Journal Name: Journal of Development Studies
• ISSN: 0022-0388
• ISSN (Online): 1743-9140