THE IMPACT OF EXCHANGE RATE VOLATILITY AND MONETARY POLICY ON IMPORT PRICE DYNAMICS: AN ECONOMETRIC ANALYSIS
Keywords:
exchange rate pass-through, import price index, monetary policy, VAR model, inflation transmission, nominal effective exchange rate, time-series econometrics, central bank policyAbstract
This study examines the relationship between national currency policy, exchange rate dynamics, and import price inflation using a quantitative time-series econometric framework. The research focuses on the exchange rate pass-through (ERPT) mechanism, through which fluctuations in the nominal effective exchange rate influence the domestic cost of imported goods. Quarterly macroeconomic data for the period 2005–2022 are analyzed using a Vector Autoregression (VAR) model that includes the Nominal Effective Exchange Rate (NEER), Import Price Index (IPI), policy interest rate, and Producer Price Index (PPI). Stationarity tests, lag-length selection criteria, and impulse response analysis are applied to ensure methodological robustness. The results allow for the estimation of both short-run and long-run pass-through effects and provide insight into the role of monetary policy in moderating inflationary pressures caused by currency depreciation. The findings contribute to a better understanding of exchange rate transmission channels and offer policy-relevant implications for inflation-targeting frameworks in open, import-dependent economies.
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