Exchange rate pass-through and cross-country spillovers: Some evidence from Ukraine and Russia

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Title: Exchange rate pass-through and cross-country spillovers: Some evidence from Ukraine and Russia
Author: Faryna, Oleksandr
Organization: Bank of Finland
Department / Unit: Institute for Economies in Transition (BOFIT)
Series: BOFIT Discussion Papers
Series number: 14/2016
Year of publication: 2016
Publication date: 6.10.2016
Pages: 30
Subject (yso): valuuttakurssit; hinnat
Keywords: Bofit-kokoelma; Venäjä; Ukraina
JEL: E31; E52; E58
Other keywords: exchange rate pass-through; Ukraine; Russia; spillovers; bilateral panel VAR
Abstract: ​This paper studies exchange rate pass-through to consumer prices in Ukraine and Russia considering cross-country linkage and spillover effects. We relax the assumption of “isolated islands” and employ a bilateral panel VAR (BPVAR) approach to estimate a pass-through effect from the ruble to hryvnia exchange rate (UAH/RUB) movements, taking into account cross-unit hetero-geneities as well as dynamic and static interdependencies. We then compare BPVAR estimates with those from individual VAR models and find that, while results for Russia do not change significantly, spillover effects are identified for Ukraine. In particular, ruble depreciation (e.g. hryvnia appreciation) results in increasing Ukrainian prices instead of declining as suggested by individual VAR analysis. We also estimate alternative BPVAR including hryvnia and ruble ex-change rates with respect to the US dollar and find that prices in Ukraine respond to changes in USD/RUB to a larger extent than to UAH/USD.
Rights: https://helda.helsinki.fi/bof/copyright


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