Template-type: ReDIF-Article 1.0
Author-Name: Aleksandr Eliseev
Author-Email: yeliseyev.alec@gmail.com
Author-Workplace-Name: Bank of Russia; HSE University
Author-Name: Anna Novak
Author-Email: ananova7@gmail.com
Author-Workplace-Name: Bank of Russia
Author-Name: Andrey Shulgin
Author-Email: andrei.shulgin@gmail.com
Author-Workplace-Name: Bank of Russia
Title: Long-Term Exchange Rate Pass-Through to Prices
Abstract: Empirical research shows that the short-term exchange rate pass-through to prices is quite small. However, can we extrapolate this conclusion to the long term? Our research suggests that the long-term exchange rate pass-through to prices is close to complete. We show this using the Bayesian method to estimate the static general equilibrium model with two effects of real price rigidity: the effect of distribution costs for tradable goods and the ad hoc capture of market share effect. The innovation to the empirical estimation of the model is that it is based on the long-term data for 2012-2018 and is performed in two stages. At the first stage, the intensity of the distribution cost effect is estimated on the statistics for 80 regions of Russia. At the second stage, we estimate elasticity parameters that allow us to calculate the long-term exchange rate pass-through to prices. The total exchange rate pass-through turns out to be almost complete and amounts in, for the basic specification, to 98.5% in the long term (more than five years).
Classification-JEL: E31, F12, F41, P48, L16
Keywords: incomplete exchange rate pass-through, real price rigidity, distribution margin, capture of market share effect, Balassa-Samuelson effect
Journal: Russian Journal of Money and Finance
Pages: 21-51
Volume: 82
Issue: 2
Year: 2023
Month: June
DOI:
File-URL: https://rjmf.econs.online/upload/iblock/27c/Long-Term-Exchange-Rate-Pass-Through-to-Prices.pdf
Handle: RePEc:bkr:journl:v:82:y:2023:i:2:p:21-51