The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
This paper estimates exchange rate pass-through to consumer prices in emerging markets
focusing on non-linearities and asymmetries. We document non-linearities and asymmetries
in the transmission of exchange rate fluctuations to prices using local projection techniques
to obtain state dependent impulse responses in a panel of 28 emerging markets. We find
significant evidence of non-linearities during episodes of depreciation greater than 10 and
20 percent. More specifically, we find that, after one month, the exchange rate pass-through
coefficient is equal to 18 and 25 percent respectively, compared to a coefficient of 6 percent
in the linear case. We also investigate the role of temporary vs. permanent shocks and the
adoption of an inflation targeting regime in the transmission from exchange rate movements
to prices. We perform a set of robustness checks, addressing the presence of outliers and
potential endogeneity concerns.