Heidi Cigan, Anton Jevčák, Perceval Pradelle and Pavlina Žáková
Exchange rate pass-through to inflation in Slovakia - Heidi Cigan, Anton Jevčák, Perceval Pradelle and Pavlina Žáková(137 kB)
(Country Focus. 8. September 2008.
Brussels. PDF. 6pp. Tab. Graph. Bibliogr. Free.)
The extent to which exchange rate movements impact on consumer prices in a given country depends on a number of micro and macro determinants. This Country Focus discusses the relevance of the theoretical determinants of the exchange rate pass-through to inflation in the case of Slovakia. Subsequently, empirical estimates of the pass-through elasticity for Slovakia, based on several methods, are presented. While econometric estimates suggest that the sensitivity of consumer prices in Slovakia to exchange rate developments is relatively high, a close analysis of inflation data concludes that the disinflationary impact of the recent exchange rate appreciation might have been smaller than implied by model-estimated elasticities. It could thus be spread over a longer time period and as a result, continue to favourably affect inflation even after Slovakia's entry into the euro-area on 1 January 2009.