ANALYSIS OF EXCHANGE RATE PASS-THROUGH, FEAR OF FLOATING, AND IMPLEMENTATION OF INFLATION TARGETING FRAMEWORK
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Accepted
27 July 2018
Published
1 December 2016
Abstract
This paper analyze the exchange rate pass-through and fear of floating behavior on 18 countries that adopting Inflation Targeting Framework (ITF). Vector Error Correction Model (VECM) is used: (1) to estimate the effect of exchange rate depreciation to inflation (passthrough); and (2) to examine the indication of fear of floating behavior. The result shows that passthrough effect has decreased in most countries after ITF where middle income countries have higher passthrough than high income countries. This effect did not disappear completely and still has a significant role to drive inflation. The interventions on exchange rate movement can be interpreted more as control of inflation than fear of floating. The implementation of ITF especially in middle income countries needs further to be reconsidered since it requires inflation as the only nominal anchor.
References
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Berg C. 2000. Inflation Forecast Targeting: The Swedish Experience [Journal]. Stockholm (SE): Sveriges Riksbank Working Paper Series No. 100.
Campa G. 2006. Pass-through of exchange rates to consumption prices: What has changed and why. New York (US): Staff Report FederalReserve Bank of New York No. 261.
Dilla S. 2014. Exchange Rate Passtrough dalam Konteks Inflation Targeting Framework: Kasus Empiris di 19 Negara di Dunia. Bogor: IPB pres.
Firdaus M. 2011. Aplikasi Ekonometrika untuk Data Paneldan Time Series. Bogor. IPB Pres.
Majardi F. 2000. Dampak Pass-through Pergerakan Nilai Tukar Rupiah Terhadap Laju Inflasi. Jakarta. Ocassional Paper Bank Indonesia.
Nogueira PR. 2006. Inflation Targeting, Exchange Rate Pass-trough and Fear of Floating [Journal]. Econstor.
Pohan A. 2008. Kerangka Kebijakan Moneter dan Implementasinya di Indonesia. Jakarta. PT Raja Grafindo Persada.
Taylor JB. 2000. Exchange Rate Passthrough Effects: A Dissaggregate Analysis Of Colombiaan Impor of Manufactured Goods. Economic Studies. Colombia. Department of the Central Bank of Colombia.
Authors
SatryoA., & AnggraeniL. (2016). ANALYSIS OF EXCHANGE RATE PASS-THROUGH, FEAR OF FLOATING, AND IMPLEMENTATION OF INFLATION TARGETING FRAMEWORK. JURNAL EKONOMI DAN KEBIJAKAN PEMBANGUNAN, 5(2), 1-9. https://doi.org/10.29244/jekp.5.2.2016.1-9
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