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Exchange rate pass-through to inflation in Mongolia

Doojav, Gan-Ochir (2009): Exchange rate pass-through to inflation in Mongolia.

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This paper examines the impact of exchange rates on the domestic consumer prices in Mongolia by analysing data from January 1998 to January 2008. The empirical model is a recursive VAR, suggested by McCarthy (2000). Impulse responses and variance decompositions are used to measure the exchange rate pass-through to consumer price inflation. The paper finds high pass-through of exchange rate to inflation and low persistence and volatility of the exchange rate. The major findings of this paper are: (i) the impact of exchange rate on consumer prices is over after about a year months, but is mostly felt in the 6-7 months. (ii) Exchange rate pass-through to consumer prices rises from about 10 percent in the fifth month of the shock to about 55 percent in ninth months. (iii) Exchange rate explains about 7-8 percent of the variation in consumer price inflation.

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