Transmission of Exchange Rate Shocks into Domestic Inflation: The Case of the Czech Republic *

Abstract

This paper aims at estimating the exchange rate pass-through (ERPT) for the Czech Republic. The existing empirical literature does not come to a consensus about the degree of pass-through to Czech inflation. Since there is no unique approach regarding how to measure ERPT, we use 11 specifications, including some along the distribution chain in the spirit of McCarthy (2007). We try to explore the properties of exchange rate shock transmission by comparing impulse responses. In addition, we try to account for possible variation in time. Finally, we explore how the pass-through differs between tradable (3 sub-groups) and non-tradable goods. We find that the speed of exchange rate shock transmission to all prices is quite high. However, in absolute terms, ERPT does not exceed 25–30 %.

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