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Exchange rate pass - through after the crisis: the Hungarian experience

Author

Listed:
  • Mihály Hajnal

    (Magyar Nemzeti Bank (Central Bank of Hungary))

  • György Molnár

    (Magyar Nemzeti Bank (Central Bank of Hungary))

  • Judit Várhegyi

    (Magyar Nemzeti Bank (Central Bank of Hungary))

Abstract

Exchange rate movements influence prices through numerous channels. In this paper we provide empirical evidence on pass-through of exchange rate movements into consumer prices. The pass-through depends on a number of factors, and its size may vary over time. In recent years, prices have responded less to a depreciation of the exchange rate than would have been warranted by estimates conducted before the crisis. Before the crisis a 1 per cent change in the exchange rate resulted in a 0.3 per cent change in price level after two years. Currently, the pass-through is estimated to be in the range of 0.1–0.2 per cent over a two-year horizon. Both cyclical (subdued demand) and structural (decline in level of inflation) factors have contributed to the weakening of the relationship.

Suggested Citation

  • Mihály Hajnal & György Molnár & Judit Várhegyi, 2015. "Exchange rate pass - through after the crisis: the Hungarian experience," MNB Occasional Papers 2015/121, Magyar Nemzeti Bank (Central Bank of Hungary).
    • Handle: RePEc:mnb:opaper:2015/121
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    References listed on IDEAS

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    Cited by:

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    2. Péter Gábriel & György Molnár & Judit Várhegyi, 2016. "Fixing an impaired monetary transmission mechanism: the Hungarian experience," BIS Papers chapters, in: Bank for International Settlements (ed.), Inflation mechanisms, expectations and monetary policy, volume 89, pages 179-191, Bank for International Settlements.
    3. György Matolcsy & Márton Nagy & Dániel Palotai & Barnabás Virág, 2020. "Inflation in the Digital Age: Inflation Measurement and Bias in the 21st Century," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 19(1), pages 5-36.
    4. Mehmet BALCILAR & Ojonugwa USMAN & Muhammad Sani MUSA, 2020. "The Long-Run and Short-Run Exchange Rate Pass-Through during the Period of Economic Reforms in Nigeria: Is it Complete or Incomplete?," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 151-172, March.
    5. Abdul Jalil, 2020. "What Do We Know of Exchange Rate Pass Through?," PIDE Knowledge Brief 2020:5, Pakistan Institute of Development Economics.
    6. Tunç, Cengiz, 2017. "A Survey on Exchange Rate Pass through in Emerging Markets," Bulletin of Economic Theory and Analysis, BETA Journals, vol. 2(3), pages 205-233, July-Sept.

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    More about this item

    Keywords

    exchange rate pass-through; inflation; time series models;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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