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The exchange rate pass-through to CPI inflation and its components in Azerbaijan

Author

Listed:
  • Vugar Rahimov

    (Central Bank of Azerbaijan Republic)

  • Nigar Jafarova

    (Central Bank of Azerbaijan Republic)

Abstract

In this study, we explore the pass-through of exchange rate fluctuations to domestic CPI inflation and its components in Azerbaijan. Using the data of 2003:Q1-2016:Q2, we estimate a VAR model and find significant but incomplete pass-through. The accumulated pass-through to aggregate CPI inflation is 28 percent within one year. According to our empirical findings, the largest pass-through (ERPT) is observed in the non-food component of CPI inflation which is 41 percent after twelve months period. Since the ERPT is an essential ingredient of price developments in Azerbaijan, it should be assessed precisely and taken into account in monetary policy decisions and inflation forecasting.

Suggested Citation

  • Vugar Rahimov & Nigar Jafarova, 2017. "The exchange rate pass-through to CPI inflation and its components in Azerbaijan," Working Papers 1701, Central Bank of Azerbaijan Republic.
    • Handle: RePEc:aze:wpaper:1701
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    More about this item

    Keywords

    Exchange rate pass-through; VAR model; disaggregated CPI; oil exporting countries;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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