|Generate QR code
Open Access
Subscription Access
The transparency of monetary policy and the effect of exchange rate pass-through
https://doi.org/10.32609/0042-8736-2021-6-32-46
Abstract
The work is devoted to the study of the influence of changes in the transparencyof monetary policy on the effect of exchange rate pass-through in consumer prices. Based on econometric modeling of cross-country panel data, it is shown that an increase in the transparency of communication between the central bank and the population leads to a decrease in the elasticity of domestic prices with respect to the exchange rate in countries that target inflation and adhere to other monetary policy regimes. The effect is observed for both developed and developing economies; it is stronger in the second case. The obtained result can be interpreted as an argument in favor of the advisability of the Bank of Russia transition from a verbal description of its future actions to the publication of a quantitative forecast of the interest rate trajectory.
About the Authors
Ph. S. Kartaev
MGIMO University; Lomonosov Moscow State University
Russian Federation
Russian Federation
Moscow
V. G. Tubdenov
MGIMO University; Lomonosov Moscow State University
Russian Federation
Russian Federation
Moscow
References
1. Банк России (2020). Основные направления единой государственной денежно-кредитной политики на 2021 год и период 2022 и 2023 годов. Москва.
2. Картаев Ф. (2017). Полезно ли инфляционное таргетирование для экономического роста? // Вопросы экономики. № 2. С. 62—74.
3. Картаев Ф. С., Якимова Ю. И. (2018). Влияние инфляционного таргетирования на эффект переноса валютного курса // Вопросы экономики. № 11. С. 70—84.
4. Моисеев С. (2017). Одиссея инфляционного таргетирования: к новым вызовам денежно-кредитной политики // Вопросы экономики. № 10. С. 50—70.
5. Adrian T., Laxton D., Obstfeld M. (eds.) (2018). Advancing the frontiers of monetary policy. Washington, DC: International Monetary Fund.
6. Altavilla C. et al. (2019). Measuring euro area monetary policy. Journal of Monetary Economics, Vol. 108, pp. 162—179. https://doi.org/10.1016/j.jmoneco.2019.08.016
7. Arellano M., Bond S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Review of Economic Studies, Vol. 58, No. 2, pp. 277—297. https://doi.org/10.2307/2297968
8. Blinder A. S. (2000). Central-bank credibility: Why do we care? How do we build it? American Economic Review, Vol. 90, No. 5, pp. 1421—1431. https://doi.org/10.1257/aer.90.5.1421
9. Coibion O., Gorodnichenko Y., Weber M. (2019). Monetary policy communications and their effects on household inflation expectations. NBER Working Paper, No. 25482. https://doi.org/10.3386/w25482
10. de Mendonça H. F., Tiberto B. P. (2017). Effect of credibility and exchange rate passthrough on inflation: An assessment for developing countries. International Review of Economics & Finance, Vol. 50, No. C, pp. 196—244. https://doi.org/10.1016/j.iref.2017.03.027
11. Del Negro M., Giannoni M. P., Patterson C. (2015). The forward guidance puzzle. FRB of New York Staff Report, No. 574.
12. Dincer N., Eichengreen B. (2014). Central bank transparency and independence: Updates and new measures. International Journal of Central Banking, Vol. 10, pp. 189—253.
13. Devereux M. B., Yetman J. (2010). Price adjustment and exchange rate pass-through. Journal of International Money and Finance, Vol. 29, No. 1, pp. 181—200. https:// doi.org/10.1016/j.jimonfin.2008.12.009
14. Dornbusch R. (1987). Exchange rates and prices. American Economic Review, Vol. 77, No. 1, pp. 93—106.
15. Gagnon J. E., Ihrig J. (2004). Monetary policy and exchange rate pass-through. International Journal of Finance and Economics, Vol. 9, No. 4, pp. 315—338. https://doi.org/10.1002/ijfe.253
16. Gopinath G. (2015). The international price system. NBER Working Paper, No. 21646. https://doi.org/10.3386/w21646
17. Gopinath G., Itskhoki O., Rigobon R. (2010). Currency choice and exchange rate passthrough. American Economic Review, Vol. 100, No. 1, pp. 304—336. https:// doi.org/10.1257/aer.100.1.304
18. Ha J., Kose M. A., Ohnsorge F. (2019). Inflation in emerging and developing economies: Evolution, drivers, and policies. Washington, DC: World Bank. https:// doi.org/10.1596/1813-9450-8761
19. IMF (2020). World economic outlook: A long and difficult ascent. Washington, DC: International Monetary Fund, October.
20. Isakov A., Grishin P., Gorlinsky O. (2018). Fear of forward guidance. Russian Journal of Money and Finance, Vol. 77, No. 4, pp. 84—106. https://doi.org/10.31477/rjmf.201804.84
21. Kartaev P., Medvedev I. (2019). Monetary policy and the effect of the oil prices passthrough to inflation. Russian Journal of Economics, Vol. 5, No. 3, pp. 211—219. https://doi.org/10.32609/j.ruje.5.47349
22. López-Villavicencio A., Mignon V. (2017). Exchange rate pass-through in emerging countries: Do the inflation environment, monetary policy regime and central bank behavior matter? Journal of International Money and Finance, Vol. 79, pp. 20—38. https://doi.org/10.1016/j.jimonfin.2017.09.004
23. López-Villavicencio A., Pourroy M. (2019). Inflation target and (a)symmetries in the oil price pass-through to inflation. Energy Economics, Vol. 80, pp. 860—875. https:// doi.org/10.1016/j.eneco.2019.01.025
24. Mishkin F. S., Schmidt-Hebbel K. (2007). Does inflation targeting make a difference? NBER Working Paper, No. 12876. https://doi.org/10.3386/w12876
25. Prasertnukul W., Ki D., Kakinaka M. (2010). Exchange rates, price levels, and inflation targeting: Evidence from Asian countries. Japan and the World Economy, Vol. 22, No. 3, pp. 173—182. https://doi.org/10.1016/j.japwor.2010.03.002
26. Yudaeva K. (2018). Frontiers of monetary policy: Global trends and Russian inflation targeting practices. Russian Journal of Money and Finance, Vol. 77, No. 2, pp. 95—100. https://doi.org/10.31477/rjmf.201802.95
27. Woodford M. (2003). Interest and prices: Foundations of a theory of monetary policy. Princeton: Princeton University Press.
Review
For citations:
Kartaev P.S., Tubdenov V.G. The transparency of monetary policy and the effect of exchange rate pass-through. Voprosy Ekonomiki. 2021;(6):32-46. (In Russ.) https://doi.org/10.32609/0042-8736-2021-6-32-46
Views:
1615
Email this article 
