Modelling aspects of the inflation process and the monetary transmission mechanism in emerging market countries

The papers on the following pages were presented and discussed at a workshop on "Modelling aspects of the inflation process and the monetary transmission mechanism in emerging market countries", held at the BIS on 15-16 January 2001. It was the first time that the BIS had arranged a meeting of this kind and twelve central banks from emerging market countries had accepted to participate in the workshop with papers or as discussants. Four papers by the BIS staff are also included in this volume. The workshop had three sessions on specific modelling aspects, with the first focusing on modelling the inflation process in emerging market countries; the second on estimating the impact of asset prices and the pass-through of exchange rate movements; and a third devoted to modelling the transmission mechanism. In a final session, participants discussed policy implications and areas of future work. Four main conclusions emerged from the papers and the discussion. First, lack of reliable data or of data series with sufficient length often force researchers to rely on small models rather than large, fully specified macro-models. Second, in virtually all countries, a major problem is finding a robust link between the output gap and the rate of inflation. Third, several papers found a marked decline in the pass-through of exchange rate changes into domestic prices, though some uncertainty remains as to the sustainability of the change. Fourth, several papers also found a surprisingly large influence of administered prices on overall inflation, raising concerns over the ability of central banks to tightly control inflation.