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Do exchange rates affect consumer prices? A comparative analysis for Australia, China and India

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  • Saha, Shrabani
  • Zhang, Zhaoyong

Abstract

An important issue for exchange rate pass-through (ERPT) is the extent to which exchange rate changes affect the prices of imported goods and the consumer prices. The objectives of this study are to make a comparative study by exploring the literature relating pass-through for import prices and domestic prices in Australia, China and India. In particular, we test whether the exchange rate pass-through to import prices is complete, estimate the pass-through to consumer price index (CPI) to investigate whether there is any association between the pass-through and the average inflation rate across these countries. A structural VAR model is used to examine the exchange rate pass-through over the period 1990–2011. The impulse responses indicate that exchange rates have less effect in the rising domestic prices in China and India. This will have important policy implication for the monetary authorities.

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  • Saha, Shrabani & Zhang, Zhaoyong, 2013. "Do exchange rates affect consumer prices? A comparative analysis for Australia, China and India," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 93(C), pages 128-138.
    • Handle: RePEc:eee:matcom:v:93:y:2013:i:c:p:128-138
    DOI: 10.1016/j.matcom.2012.11.002
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    Cited by:

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    3. Michael McAleer & Felix Chan & Les Oxley, 2013. "Modeling and Simulation: An Overview," Working Papers in Economics 13/18, University of Canterbury, Department of Economics and Finance.
    4. Anderl, Christina & Caporale, Guglielmo Maria, 2023. "Nonlinearities in the exchange rate pass-through: The role of inflation expectations," International Economics, Elsevier, vol. 173(C), pages 86-101.
    5. Gizem BAS & Mehmet KARA, 2020. "Exchange Rate Pass-Through on the Domestic Prices: Evidence from the Turkish Economy," Isletme ve Iktisat Calismalari Dergisi, Econjournals, vol. 8(2), pages 115-125.
    6. Yu Hsing, 2020. "A Simultaneous-Equation Model of Estimating the Response of the Consumer Price to Exchange Rate Movements in Thailand," Business and Economic Research, Macrothink Institute, vol. 10(1), pages 284-293, March.
    7. Joseph Musandiwa & Collins C. Ngwakwe, 2023. "The Effect of Exchange Rates on Consumer Price Index," Oblik i finansi, Institute of Accounting and Finance, issue 4, pages 47-52, December.
    8. Azimi, Mohammad Naim, 2015. "Is CPI generated from stationary process? An investigation on unit root hypothesis of India’s CPI," MPRA Paper 69518, University Library of Munich, Germany, revised 03 Jan 2016.
    9. Ganapati Mendali & Sanjukta Das, 2017. "Exchange Rate Pass-through to Domestic Prices," Foreign Trade Review, , vol. 52(3), pages 135-156, August.
    10. Nguyen Thi Thanh Binh, 2023. "How to Hedge against Inflation Risk in Vietnam," Economies, MDPI, vol. 11(3), pages 1-12, March.
    11. International Monetary Fund, 2013. "Algeria: Selected Issues Paper," IMF Staff Country Reports 2013/048, International Monetary Fund.

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    More about this item

    Keywords

    Exchange rate pass-through (ERPT); Structural VAR model; Australia; China and India;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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