Exchange Rate Pass-Through in Pakistan

Younus, Rijja Ali and Yucel, Eray (2020): Exchange Rate Pass-Through in Pakistan.

Abstract

Exchange rate pass-through, which is the degree of reflection of exchange rate movements on domestic inflation, is a crucial phenomenon especially for the developing economies. In this paper we study the exchange rate pass-through for the Pakistani economy from 2008 to 2019. Using quarterly data for consumer prices and the Pakistani Rupee – USD exchange rate and a simple econometric framework, we estimate the pass-through coefficients to various subgroup and item indices within Pakistani household consumption basket. Our findings indicate that pass-through behavior is limited to only some items, motivating us to develop an exchange rate sensitive items index to allow for better forecasting performance on the side of policymakers.

• Item Type: MPRA Paper
• Language: English
• Keywords: Exchange rate; ERPT; Pass-through; Pakistan; Inflation; Price level
• Subjects: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C51 - Model Construction and Estimation; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies

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