Exchange rate uncertainty and the connectedness of inflation
In this study, we examine the connectedness of exchange rate uncertainty and inflation. In an economy with a flexible exchange rate, price rigidities can lead importers to carry exchange rate risk and they impose a premium for the risk they face by increasing consumer prices. This pricing behavior p...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
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Elsevier
2023-05-01
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| Series: | Borsa Istanbul Review |
| Subjects: | |
| Online Access: | http://www.sciencedirect.com/science/article/pii/S2214845023000091 |
| _version_ | 1797818738765987840 |
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| author | Sadettin Haluk Çitçi Hüseyin Kaya |
| author_facet | Sadettin Haluk Çitçi Hüseyin Kaya |
| author_sort | Sadettin Haluk Çitçi |
| collection | DOAJ |
| description | In this study, we examine the connectedness of exchange rate uncertainty and inflation. In an economy with a flexible exchange rate, price rigidities can lead importers to carry exchange rate risk and they impose a premium for the risk they face by increasing consumer prices. This pricing behavior provides a channel between exchange rate uncertainty and overall price level. We empirically analyze the impact of exchange rate uncertainty on inflation by using panel data from 149 countries over the period 1980–2017. The estimation results point that the uncertainty of the exchange rate has a significant and positive effect on inflation. We also show that effect of exchange rate uncertainty on inflation is nonlinear. As the exchange rate uncertainty increases, the size of its effect on inflation decreases. Moreover, the degree of exchange rate pass-through and the effect of exchange rate uncertainty on inflation differ among country groups and their effects on inflation have decreased through time. |
| first_indexed | 2024-03-13T09:12:31Z |
| format | Article |
| id | doaj.art-c6aa944960dc4831b4720b8a2fad81f2 |
| institution | Directory Open Access Journal |
| issn | 2214-8450 |
| language | English |
| last_indexed | 2024-03-13T09:12:31Z |
| publishDate | 2023-05-01 |
| publisher | Elsevier |
| record_format | Article |
| series | Borsa Istanbul Review |
| spelling | doaj.art-c6aa944960dc4831b4720b8a2fad81f22023-05-27T04:25:21ZengElsevierBorsa Istanbul Review2214-84502023-05-01233723735Exchange rate uncertainty and the connectedness of inflationSadettin Haluk Çitçi0Hüseyin Kaya1Gebze Technical University, Department of Economics, P.K.:141, 41400 Gebze, Kocaeli, Turkiye; Corresponding author.Istanbul Medeniyet University, Faculty of Political Sciences, 34720 Kadikoy, Istanbul TurkiyeIn this study, we examine the connectedness of exchange rate uncertainty and inflation. In an economy with a flexible exchange rate, price rigidities can lead importers to carry exchange rate risk and they impose a premium for the risk they face by increasing consumer prices. This pricing behavior provides a channel between exchange rate uncertainty and overall price level. We empirically analyze the impact of exchange rate uncertainty on inflation by using panel data from 149 countries over the period 1980–2017. The estimation results point that the uncertainty of the exchange rate has a significant and positive effect on inflation. We also show that effect of exchange rate uncertainty on inflation is nonlinear. As the exchange rate uncertainty increases, the size of its effect on inflation decreases. Moreover, the degree of exchange rate pass-through and the effect of exchange rate uncertainty on inflation differ among country groups and their effects on inflation have decreased through time.http://www.sciencedirect.com/science/article/pii/S2214845023000091E31E52F41 |
| spellingShingle | Sadettin Haluk Çitçi Hüseyin Kaya Exchange rate uncertainty and the connectedness of inflation Borsa Istanbul Review E31 E52 F41 |
| title | Exchange rate uncertainty and the connectedness of inflation |
| title_full | Exchange rate uncertainty and the connectedness of inflation |
| title_fullStr | Exchange rate uncertainty and the connectedness of inflation |
| title_full_unstemmed | Exchange rate uncertainty and the connectedness of inflation |
| title_short | Exchange rate uncertainty and the connectedness of inflation |
| title_sort | exchange rate uncertainty and the connectedness of inflation |
| topic | E31 E52 F41 |
| url | http://www.sciencedirect.com/science/article/pii/S2214845023000091 |
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