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The Relevance Of Pass-Through Effect: Should We Revisit Monetary Policy Regime?

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  • Christian Pinshi

    (UNIKIN - University of Kinshasa)

  • Emmanuel Sungani

    (UNIKIN - University of Kinshasa)

Abstract

This paper aims to examine the relationship between exchange rate changes and domestic prices in DR. Congo, more particularly to measure the level of exchange rate pass-through to inflation from January 2002 to March 2017. Applying a cointegration and using a vector error correction model, the main finding is that a change in exchange rate will affect inflation more than proportionally, the level of pass-through being relatively high. One per cent of currency depreciation increases prices index of 0.38 per cent in the short run. This effect is larger in the long run where the increase in prices index is 1,66%. Furthermore, the adjustment towards equilibrium will take time (12 months and 2 weeks). As main implication, Congolese's monetary authority must, on the one, be careful and closely monitor exchange rate behaviour so as to take a prompt monetary policy action and stem inflation pressure from the external sector by targeted exchange rate market interventions and, on the other, rethink intermediate targets by adopting hybrid targeting : (i) monetary targeting and (ii) implicit and flexible exchange rate targeting.

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  • Christian Pinshi & Emmanuel Sungani, 2018. "The Relevance Of Pass-Through Effect: Should We Revisit Monetary Policy Regime?," Post-Print hal-02566800, HAL.
    • Handle: RePEc:hal:journl:hal-02566800
    Note: View the original document on HAL open archive server: https://hal.science/hal-02566800
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    References listed on IDEAS

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    Cited by:

    1. PINSHI, Christian P., 2019. "Dollarization and Foreign Exchange Reserve : Debate on the Effectiveness of Monetary Policy in DR. Congo," MPRA Paper 104807, University Library of Munich, Germany.
    2. Christian Pinshi, 2020. "COVID-19 uncertainty and monetary policy," Working Papers hal-02566796, HAL.
    3. Pinshi, Christian, 2020. "Rethinking error correction model in macroeconometric analysis : A relevant review," MPRA Paper 98202, University Library of Munich, Germany.
    4. Prashant Parab, 2022. "Exchange rate pass-through in India," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2022-012, Indira Gandhi Institute of Development Research, Mumbai, India.
    5. PINSHI, Christian P., 2020. "Uncertainty, monetary policy and COVID-19," MPRA Paper 100147, University Library of Munich, Germany.
    6. Christian P Pinshi, 2021. "Repenser le modèle à correction d'erreurs dans l'analyse macroéconométrique : Une revue," Working Papers hal-03168443, HAL.
    7. Plante M Kibadhi & Christian Pinshi, 2020. "Rethinking Communication in Monetary Policy: Towards a Strategic leaning for the BCC," Working Papers hal-02892777, HAL.
    8. PINSHI, Christian P., 2018. "Macroeconomic effects of falling commodity price: Evidence from Democratic Republic of the Congo," MPRA Paper 101068, University Library of Munich, Germany.
    9. Pinshi, Christian P., 2020. "Monetary policy, uncertainty and COVID-19," MPRA Paper 100836, University Library of Munich, Germany, revised 27 May 2020.

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