Research On Incomplete Effect Of Exchange Rate Pass-Through In The Emerging Economies

Whether there is incomp lete effect in the exchange rate pass-through (ERPT) ofone econo my has been a core iss ue in the internationa l econo mics research. On onehand, the traditiona l econo mics theories belie ve that exc hange rate move ments andchanges in the prices of imported goods should be the same proportion; howeve r, therea lity is not cons istent with that. On the other hand, changes in the prices of importedgoods caused by excha nge rate fluctuations will be delivered to the overa ll price,affecting the economies. There fore, the study o f excha nge rate pass-through haspractica l significa nce. The existing literature focuses on the developed econo mies,ignored the investigation of e merging economies (EM).In this paper, a comb ination of theoretica l analys is and emp irica l method hasbeen carried on to investigate the incomp lete effects of ERPT in EM. First, this paperpoints out that the perfect competitive market and no-cost arbitrage assumptio ns intrad itiona l theory do not hold in reality. The n, from a micro-leve l ana lys is, I selectdema nd and supply perspective to ana lys is the cause of incomp lete ERPT. Fina lly, Ianalyzed the rele vant factors that ma y affect the excha nge rate pass fro m a macroperspective. To conduct the e mpirica l research, this paper uses31EM, ranging fro m1980to2011. Thro ugh the establishme nt with micro-based empirica l model, I utilizedthe Mean Group (MG) estimation and Pooled Mean Group (PMG) estimation model,found that there exist incomp lete effect of ERPT in EM, and the ERPT coeffic ients arenot cons istent between different economies. The results of Full Modified OLS(FMOLS) and Dyna mic OLS (DOLS) estimatio n are0.76and0.78separately. Thispaper also found the excha nge rate vo latility, the degree of openne ss of oneecono mies and the inflation are the affecting factors of EPRT. Based on the result ofemp irical stud ies, I propose that reduce the amp litude of fluctuations in exchange rate,ma intain certain economics openness degree, stab ilize inflatio n expecta tio ns andimprove own competitiveness will ens ure the steady and sustainable deve lopment ofEM.