Open AccessInflation Targeting and the Pass-through Effect in Mongolia
Author(s) -
Hiroyuki Taguchi,
Jambaldorj Bolortuya
Publication year - 2019
Publication title -
business and economic research
Language(s) - English
Resource type - Journals
ISSN - 2162-4860
DOI - 10.5296/ber.v9i2.14579
Subject(s) - exchange rate pass through , economics , inflation targeting , exchange rate , inflation (cosmology) , monetary economics , shock (circulatory) , monetary policy , vector autoregression , macroeconomics , econometrics , medicine , physics , theoretical physics
This paper aims to provide empirical evidence on the relationship between inflation targeting and the pass-through effect from exchange rate to consumer prices, focusing on the case of Mongolia. The study estimates a vector-autoregressive model, and examines the impulse responses of consumer prices to the shock of exchange rate for the pre-inflation targeting period and the post-inflation targeting period. The empirical analysis identified the existence of the pass-through effect during the pre-inflation targeting period and the loss of the pass-through during the post-inflation targeting period. It was speculated that the loss of the pass-through comes from the “forward-looking” monetary policy rule in Mongolian inflation targeting, so that it can work on the expectations of domestic agents such that they are less inclined to change prices in response to a given exchange rate shock.