Inflation targeting and the pass-through effect: The case of Mongolia

Taguchi, Hiroyuki (2019): Inflation targeting and the pass-through effect: The case of Mongolia.

Abstract

This paper aims to provide empirical evidence on the relationship between inflation targeting and the pass-through effect from exchange rate to consumer prices, focusing on the case of Mongolia. The study estimates a vector-autoregressive model, and examines the impulse responses of consumer prices to the shock of exchange rate for the pre-inflation targeting period and the post-inflation targeting period. The empirical analysis identified the existence of the pass-through effect during the pre-inflation targeting period and the loss of the pass-through during the post-inflation targeting period. It was speculated that the loss of the pass-through comes from the “forward-looking” monetary policy rule in Mongolian inflation targeting, so that it can work on the expectations of domestic agents such that they are less inclined to change prices in response to a given exchange rate shock.

• Item Type: MPRA Paper
• Language: English
• Keywords: Inflation Targeting; Pass-through Effect; Mongolia; Vector Autoregressive Model; Forward-looking Rule
• Subjects: E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; F - International Economics > F3 - International Finance > F31 - Foreign Exchange; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O53 - Asia including Middle East

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