The Role of Monetary Policy Credibility on the Exchange Rate Pass-through during the Process of Globalization

Document Type : Original Article

Authors

1 PhD Candidate in Economics, Faculty of Economics and Management, Urmia University

2 Associate Professor of Economics, Faculty of Economics and Management, Urmia University, (Corresponding Author)

10.29252/ecoj.10.1.37

Abstract

Over time, countries are affected by economic, political, and social changes happening around the world. These mutually influential economic, political, and social changes among nations have called "globalization". The process of globalization has many supporters and opponents and is inevitably moving forward issue. The main question in the area of ​​the pass-through of the exchange rate to consumer prices is to measure the role of the credibility of the monetary policy on the degree of exchange rate pass-through to consumer prices in the process of globalization. In other words, whether a credible monetary policy is effective in reducing the pass-through of the exchange rate to consumer prices? The present study aims to answer the abovementioned question using the data of 32 developing countries and 24 developed countries during 1980 to 2015, using a Panel Smooth Transition Regression model to examine the degree of exchange rate pass-through to consumer prices under different globalization regimes by concentrating on the calculation and application of the credibility of the monetary policy for different countries. The results of this study indicate that with the expansion of globalization process and the transition from the first regime (a regime in which countries have moved towards economic globalization to a less extent) to the second regime (A regime in which countries have a high degree of economic globalization), the degree of exchange rate pass-through to consumer prices increases and decreases in developing and developed countries (with different impacts of the degree of monetary policy credibility) respectively. 

Keywords

References

- Aleem, A., &Lahiani, A. (2014). Monetary Policy Credibility and Exchange Rate Pass-Through, Some Evidence From Emerging Countries. Economic Modelling, 43, 21-29.
- Asghapour, H., &Mehdiloo, A. (2014). The Impact of InflationaryEnvironment on Exchange Rate Pass-Through on Import Prices in Iran, Markov-Switching Approach. Journal of Economic Research and Policies, 22 (70) ,75-102 (In Persian).
- Asgharpur, H. &Mehdiloo, A. (2012). The Impact of Inflationary Environment on Exchange Rate Pass- Through on Export Prices in Iran. Journal Of Applied Economics Studies in Iran, 3(11), 1-26 (In Persian).
- Asgharpur, H., Kazerooni, A. & Mirani, N. (2015). The Impact of Inflationary Environment on Exchange Rate Pass- Through to The Import Price Index in Iran. Quarterly Journal Of Applied Theories Of Economics, 2(2), 155-178 (In Persian).
- Benigno, P., &Faia, E. (2016). Globalization, Pass-Through and Inflation Dynamics. International Journal Of Central Banking, 12(4), 263-306.
- Campa, J. M., & Goldberg, L. S. (2005). Exchange Rate Pass-Through into Import Prices. Review Of Economics And Statistics, 87(4), 679-690.
- Chang, J. C., &Tsong, C. C. (2010). Exchange Rate Pass-Through and Monetary Policy, A Cross-Commodity Analysis. Emerging Markets Finance And Trade, 46(6), 106-120.
- Daniels, J. P., &Vanhoose, D. D. (2013). Exchange-Rate Pass Through, Openness, and The Sacrifice Ratio. Journal Of International Money and Finance, 36, 131-150.
- De Mendonça, H. F., &Tiberto, B. P. (2017). Effect Of Credibility And Exchange Rate Pass-Through On Inflation, An Assessment For Developing Countries. International Review Of Economics & Finance, 50, 196-244.
- Eslamloueyan, K., &Mahzoon, Z. (2019). Production State-Dependent Non-Linear Behavior of Exchange Rate Pass-Through in Iran. Journal of Economics and Modeling, 9(4), 1-32(In Persian).
- Flamini, A. (2007). Inflation Targeting and Exchange Rate Pass-Through. Journal Of International Money and Finance, 26(7), 1113-1150.
- Gagnon, J. E., &Ihrig, J. (2004). Monetary Policy And Exchange Rate Pass‐Through. International Journal Of Finance & Economics, 9(4), 315-338.
- Kabundi, A., &Mlachila, M. (2018). The Role of Monetary Policy Credibility In Explaining The Decline In Exchange Rate Pass-Through In South Africa. Economic Modelling (In Press).
- Khodavaisi, H., Najari, S. &Ezzati, A. (2017). Investigating The Relationship Between Globalization and Income Inequality, an Application for Panel Smooth Transition Threshold Regression Model. Journal Of Economic Research, 52(1), 61-87 (In Persian).
- Lashkary, M., Abolhasani, A., Asgharpour, H., &Tamizi, A. R. (2015). Analysis of Exchange Rate Pass-Through to Export Prices and The Impact of Inflation, and Income on It in Iran and Trading Partners, A GMM Estimator Approach. Quarterly Journal of Economic Research and Policies, 23 (73), 111-128 (In Persian).
- López-Villavicencio, A., & Mignon, V. (2017). Exchange Rate Pass-Through In Emerging Countries, Do The Inflation Environment, Monetary Policy Regime and Central Bank Behavior Matter? Journal Of International Money And Finance, 79, 20-38.
- Maria-Dolores, R. (2009). Exchange Rate Pass-Through In Central And East European Countries. Eastern European Economics, 47(4), 42-61.
- Mehrara, M., Behzadi Sofiani, M. (2016). The Threshold and Nonlinear Effect of Real and Nominal Variables on Inflation: the TAR Approach. Journal of Economics and Modeling, 7(27), 25-54 (In Persian).
- Mesbahi, M., Asgharpour, H., Haghighat, J., Kazerooni, S. &Fallahi, F. (2017). Exchange Rate Pass-Through into Import Price in Iran Economy With Emphasis on Volatility of Oil Revenues (Nonlinear Approach). Economic Modeling, 11(37), 77-100 (In Persian).
- Ozkan, I., &Erden, L. (2015). Time-Varying Nature and Macroeconomic Determinants Of Exchange Rate Pass-Through. International Review Of Economics & Finance, 38, 56-66.
- Rasekhi S. &Montazeri M. (2016) The Impact of Macroeconomic Instability on Exchange Rate Pass Through, Some Evidence From Smooth Transition Regression (STR) Model. Journal Of Economic Modeling Research, 6 (22) ,7-31 (In Persian).
- Rezazadeh, A., Mohammadpoor, S. &Fattahi, F. (2018). Application of The Threshold Vector Autoregression Model (TVAR) in Nonlinear Analysis of Exchange Rate Pass-Through on Inflation in Iran. Journal Of Applied Economics Studies In Iran, 7(27), 51-81 (In Persian).
- Shajari, H., Tayebi, S., &Jalaei, S (2006). An Analysis of Exchange Rate Pass-Through in Iran, An Application Of Neuro-Fuzzy Systems. Iranian Journal of Economic Research, 8(26), 153-179 (In Persian).
- Shintani, M., Terada-Hagiwara, A., &Yabu, T. (2013). Exchange Rate Pass-Through and Inflation, A Nonlinear Time Series Analysis. Journal Of International Money And Finance, 32, 512-527.
- Tamizi, A. (2016). Analysis of Exchange Rate Pass-Through on Export Prices on Iran and The Impact Inflation, and Openness on It. Quarterly Journal of Quantitative Economics, 11(3), 61-79 (In Persian).
- Taylor, J. B. (2000). Low Inflation, Pass-ThroughAnd The Pricing Power of Firms. European Economic Review, 44(7), 1389-1408.
- Wu, P. C., Liu, S. Y., & Yang, M. F. (2017). Nonlinear Exchange Rate Pass-Through, The Role Of National Debt. Global Economic Review, 46(1), 1-17.

Files

Share

How to cite

Statistics