Working Papers - details - WEF0049
Emerging Floaters: Pass-Throughs and
(Some) New Commodity Currencies
Emanuel Kohlscheen
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Abstract
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. We 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,
we 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.