File(s) under permanent embargo

Reason: This item is currently closed access.

Markov-switching analysis of exchange rate pass-through: perspective from Asian countries

journal contribution
posted on 13.11.2017, 11:18 by Ahmad Zubaidi Baharumshah, Siew-Voon Soon, Mark Wohar
This study presents a nonlinear pass-through from the exchange rate to domestic prices drawn from a dataset of six Asian countries. Using the Markov-switching model, it is found that there are two regimes. The extent of the pass-through is incomplete and is found to be significantly lower in stable regime states. Domestic prices are sensitive to external factors when inflation uncertainty is higher. Essentially, the pass-through estimates exhibit some variation across countries and regimes. Central banks are credible, but the exchange rate is ineffective as a shock absorber during the unstable regime. We find that the output gap has more influence on inflation when the level of inflation exhibits large and erratic variations. Policymakers need to pay attention during periods of high inflation because consumer prices respond differently when the economy is in a high compared to a low inflation regime.

Funding

This paper is fully funded by Universiti Putra Malaysia [Grant No: GP-IPB/2014/9440900].

History

School

  • Business and Economics

Department

  • Business

Published in

International Review of Economics and Finance

Volume

51

Pages

245 - 257

Citation

BAHARUMSHAH, A.Z., SOON, S-V. and WOHAR, M.E., 2017. Markov-switching analysis of exchange rate pass-through: perspective from Asian countries. International Review of Economics and Finance, 51, pp. 245-257.

Publisher

© Elsevier

Version

VoR (Version of Record)

Publisher statement

This work is made available according to the conditions of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International (CC BY-NC-ND 4.0) licence. Full details of this licence are available at: https://creativecommons.org/licenses/by-nc-nd/4.0/

Acceptance date

22/05/2017

Publication date

2017

Notes

This paper is in closed access.

ISSN

1059-0560

Language

en

Exports

Logo branding

Exports