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Exchange rate pass-through in Nepal

Author

Listed:
  • Lama, Anil
  • Budha, Birendra Bahadur
  • Prabhesh, K.P.
  • Rana, Sona

Abstract

This paper estimates the exchange rate pass-through in Nepal using Local Projections based on monthly data for the period from March 1993 to October 2023. The paper finds a significant exchange rate pass-through to consumer prices for up to 12 months. Moreover, the pass-through is significant during the depreciation of the exchange rate but not during appreciation periods, indicating the asymmetric effect of exchange rate changes. Additionally, exchange rate pass-through has significantly declined after the formal announcement of Nepalese monetary policy in 2003 and the global financial crisis in 2007. The presence of a significant pass-through, given the peg with the Indian Rupee and high trade integration with India, suggests that it is important for the central bank to consider this pass-through while making monetary policy decisions.

Suggested Citation

  • Lama, Anil & Budha, Birendra Bahadur & Prabhesh, K.P. & Rana, Sona, 2025. "Exchange rate pass-through in Nepal," Journal of Asian Economics, Elsevier, vol. 97(C).
    • Handle: RePEc:eee:asieco:v:97:y:2025:i:c:s1049007825000211
    DOI: 10.1016/j.asieco.2025.101897
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    More about this item

    Keywords

    Exchange rate pass-through; Consumer prices; Inflation; Exchange rate;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts

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