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Title: Exchange Rate Pass-Through in Candidate Countries

Author(s): Fabrizio Coricelli, Bostjan Jazbec and Igor Masten

Publication Date: May 2003

Keyword(s): emu accession, I(2) co-integration analysis and pass-through effect

Programme Area(s): Transition Economics

Abstract: In this Paper we analyse the link between the choice of exchange rate regime and inflationary performance in four EU accession countries: the Czech Republic, Hungary, Poland and Slovenia. Estimation of pass-through effect of exchange rate changes to CPI inflation is complemented by I(2) co-integration analysis of stochastic nominal trends. The results allow a clear ranking of countries according to the size of the pass-through effect and the importance of exchange rate shocks to overall inflationary performance. In particular, we find that perfect pass-through effect can be associated with accommodative exchange rate policy, which can moreover become the most important source of inflationary pressures. The analysis suggests that for CEEC-4 the early adoption of the euro can provide the most efficient framework for reducing inflation.

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Bibliographic Reference

Coricelli, F, Jazbec, B and Masten, I. 2003. 'Exchange Rate Pass-Through in Candidate Countries'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=3894