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Monetary policy credibility and exchange rate pass-through: Some evidence from emerging countries

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  • Aleem, Abdul
  • Lahiani, Amine

Abstract

Considering external constraints on monetary policy in emerging countries, we propose a semi-structural vector autoregressive model with exogenous variables (VARX) to examine the exchange rate pass-through to domestic prices. We demonstrate that a lower exchange rate pass-through is associated with a credible monetary policy aiming at controlling inflation. The empirical results suggest that the exchange rate pass-through is higher in Latin American countries than in East Asian countries. The exchange rate pass-through has declined after the adoption of an inflation targeting monetary policy.

Suggested Citation

  • Aleem, Abdul & Lahiani, Amine, 2014. "Monetary policy credibility and exchange rate pass-through: Some evidence from emerging countries," Economic Modelling, Elsevier, vol. 43(C), pages 21-29.
    • Handle: RePEc:eee:ecmode:v:43:y:2014:i:c:p:21-29
    DOI: 10.1016/j.econmod.2014.06.020
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