Emerging floaters: pass-throughs and (some) new commodity currencies

Emerging floaters: pass-throughs and (some) new commodity currencies
Document type
Working Paper
Author(s)
Kohlscheen, Emanuel
Publisher
Birkbeck, University of London
Date of publication
1 March 2009
Series
World Economy & Finance Research Programme Working Paper Series
Subject(s)
Trends: economic, social and technology trends affecting business
Collection
Business and management
Material type
Reports

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In spite of early skepticism on the merits of floating exchange rate regimes in emerging markets, 8 of the 25 largest countries in this group have now had a floating exchange rate regime for more than a decade. Using parsimonious VAR specifications covering the period of floating exchange rates, this study finds that exchange rate pass-throughs to consumer price indices in these emerging floaters have typically been moderate even though emerging floaters have seen considerable nominal and real exchange rate volatilities. Previous studies that set out to estimate exchange rate pass-throughs ignored changes in policy regimes, making them vulnerable to the Lucas critique. The authors find that, within the group of emerging floaters, estimated pass-throughs are higher for countries with greater nominal exchange rate volatilities and that trade more homogeneous goods. These findings are consistent with the pass-through model of Floden and Wilander (2006) and earlier findings by Campa and Goldberg (2005), respectively. Furthermore, the authors find that the Indonesian Rupiah, the Thai Baht and possibly the Mexican Peso are commodity currencies, in the sense that their real exchange rates are cointegrated with international commodity prices. 

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