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Method Versus Cross-Country Heterogeneity in the Exchange Rate Pass-Through

Author

Listed:
  • Tersoo David Iorngurum

    (Faculty of Social Sciences, Charles University, Prague)

Abstract
Estimates of the exchange rate pass-through vary significantly across studies, making it difficult for policymakers and researchers to ascertain the true impact of exchange rate fluctuations on domestic prices. I conduct a meta-analysis to understand why estimates differ and provide consensus for the conflicting results. My dataset includes 32 primary studies containing 684 estimates for 108 countries. Because there are many potential causes of heterogeneity, I use Bayesian model averaging to identify the most important ones. I find that estimates vary due to differences in country-specific and methodological characteristics. The country-specific characteristics include central bank independence, inflationary environment, and economic development, while the methodological variables include data frequency, data dimension, and data time span. When I control for differences in methodology and assign greater weight to those that reflect the best practices in the literature, I find that the implied pass-through estimates remain substantial, albeit smaller than suggested in the literature. The pass-through is 6% for developed countries and 9% for developing countries.

Suggested Citation

  • Tersoo David Iorngurum, 2023. "Method Versus Cross-Country Heterogeneity in the Exchange Rate Pass-Through," Working Papers IES 2023/16, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised May 2023.
    • Handle: RePEc:fau:wpaper:wp2023_16
    as

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    File URL: https://ies.fsv.cuni.cz/en/veda-vyzkum/working-papers/6763
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    exchange rate pass-through; prices; heterogeneity; meta-analysis;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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