Exchange rate pass-through and the frequency of price adjustment across different inflation regimes
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2015
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Abstract
The paper explores the link between the inflationary environment and the size
of the exchange rate pass-through (ERPT) into domestic prices, as inflation
descends from an extreme, second highest and second longest hyperinflation in
the 20th century, to high and then moderate inflation in Serbia. We found
that ERPT decreases with a decline in the inflation level, variability and
persistence, thus supplementing findings previously acquired in panel studies
across countries. Our findings can be explained by surging empirical evidence
on state contingent behavior of pricing, which indicates a sharp increase in
the frequency of price adjustment as one moves from moderate, via high to
hyperinflation, suggesting that the degree of price rigidities is a key
determinant of the size and speed of ERPT. ERPT estimates are embedded in
careful analysis of inflation episodes in Serbia, showing that hyper and high
inflation episodes subscribe to the same, fiscal explanation, as opposed to
the moderate inflation ones, where supply and demand shocks have been the
main inflation drivers.
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pavle2015exchangepanoeconomicus
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| Authors | Pavle, Petrović;Zorica, Mladenović; |
| Journal | panoeconomicus |
| Year | 2015 |
| DOI |
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