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How important and asymmetric is the exchange rate pass-through to consumer prices in the Czech republic?

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  • Sandrine Levasseur

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

Abstract

In this paper, we analyse empirically the exchange rate pass-through to the consumer price index (CPI) in the Czech Republic. Based on monthly data from 1998 onwards, our estimates yield the following main results. First, the exchange rate passthrough appears very low or, put differently, changes in the exchange rate are by far less than fully reflected in the CPI. Second, the exchange rate pass-through is not asymmetric, with the CPI responding in a symmetrical manner to both appreciations and depreciations. Consequently, in the run up to the European Monetary Union, the Maastricht criteria of inflation and exchange rate stability appear rather disconnected and, the effectiveness of exchange rate appreciation in lowering inflation is thus quite low. Besides this key message for policy-making, we discuss how our results are sensitive to the introduction – or not – of dummy variables to control for one-off factors (e.g. increases in regulated prices), two different specifications for our variables of interest (i.e. month-on-month changes and year-on-year changes) as well as different time spans.

Suggested Citation

  • Sandrine Levasseur, 2008. "How important and asymmetric is the exchange rate pass-through to consumer prices in the Czech republic?," Post-Print hal-03610106, HAL.
    • Handle: RePEc:hal:journl:hal-03610106
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    Cited by:

    1. Sandrine LEVASSEUR, 2010. "International outsourcing over the business cycle: some intuition for Germany, the Czech Republic and Slovakia," Eastern Journal of European Studies, Centre for European Studies, Alexandru Ioan Cuza University, vol. 1, pages 165-185, December.
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