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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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    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. 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.
    4. 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.
    5. 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.
    6. Abdul Jalil, 2020. "What Do We Know of Exchange Rate Pass Through?," PIDE Knowledge Brief 2020:5, Pakistan Institute of Development Economics.

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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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