Exchange rate pass-through: A comparative analysis of inflation targeting & non-targeting ASEAN-5 countries

• Published in: The Quarterly review of economics and finance 2023-02, Vol.87, p.158-167
• Main Authors: Pham, Thu Anh Thi, Nguyen, Thong Trung, Nasir, Muhammad Ali, Duc Huynh, Toan Luu
• Format: Article
• Language: English
• Subjects: ASEAN-5; Exchange rate pass-through; GDP; Inflation targeting; Monetary policy; Money supply; Oil price
• ISSN: 1062-9769; 1878-4259
• DOI: 10.1016/j.qref.2020.07.010

•The analysis of Exchange Rate Pass-Through in inflation targeting and non-targeting economies of ASEAN-5.•Exchange rate shocks do lead to significant changes in inflation.•Asymmetric effects of exchange rate shocks in Singapore, Philippines, and Indonesia.•The results varied between and among inflation targeting and non-targeting countries.•Oil price shocks are the most crucial factor with the largest impact on inflation in ASEAN-5 economies.•We suggest implications for monetary policy formulation and price stability. In the context of the debate on Exchange Rate Pass-Through (ERPT) under inflation targeting regimes, this study analysis the ERPT in inflation targeting and non-targeting economies of ASEAN-5. Employing a Non-linear Autoregressive Distributed Lag (N-ARDL) framework on data from 2000: Q1 to 2019 Q:4, our key empirical findings suggest that the exchange rate shocks do lead to significant changes in inflation. There is also prima facie evidence of asymmetric effects of exchange rate shocks in Singapore, Philippines, and Indonesia and the results varied between and among inflation targeting and non-targeting countries. The results also varied in the short and long-terms, whereas in the long-run, asymmetric effects of real exchange rate persist only for Indonesia and Singapore. Regardless of the inflation targeting or non-targeting regime, oil price shocks are found to be the most crucial factor with the largest impact on inflation in ASEAN-5 economies. Money supply and output growth also found to have some effect on inflation, though the results varied among countries. Our findings have profound implication for monetary policy formulation and price stability.