A Study on the Relationship between Exchange Rate and Consumer Prices Based on ECM

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1 Send Orders for Reprins o reprins@benhamscience.ae 3 The Open Cyberneics & Sysemics Journal, 25, 9, 3-36 Open Access A Sudy on he Relaionship beween Exchange Rae and Consumer Prices Based on ECM Jun Liu * School of Managemen, efei Universiy of Technology, efei, Anhui, 239, China Absrac: One imporan issue of exchange rae pass-hrough is he exen o which exchange rae changes affec he prices. This paper sudied he pass-hrough effec of movemens in he RMB nominal exchange rae on consumer prices. In paricular, we examined wheher he exchange rae pass-hrough o consumer prices was complee or no, and he impac of exchange rae sysem reform had on he pass-hrough effec. To his end, he paper used he error correcion model (ECM) o conduc an empirical analysis from he firs season of 994 o he las season of 23 period. The resuls showed ha he pass-hrough of exchange rae changes o consumer prices was incomplee. In he sample period, he exchange rae pass-hrough effec was on he overall downward rend. The exchange rae sysem reform caused srucural changes in he pass-hrough effec. The overall pass-hrough effec was higher afer he reform han before, and he passhrough was lagging. inally, our resuls made suggesions o improve Chinese moneary policies. Keywords: Consumer prices, exchange rae pass-hrough, exchange rae.. INTRODUCTION Price sabiliy has become an imporan objecive of he governmen s macroeconomic policy. Since 27, China s inflaion was high, showing higher inflaionary pressures. Afer he global financial crisis, he inflaion rae fell, however, he major developed counries implemened quaniaive easing moneary policy, inflaion rose sharply. Significan flucuaions in he price level are he resuls of a variey of inernal and exernal facors, wih he increase of opening degree, he exchange rae has become an imporan channel for exernal shocks affecing he domesic economy. Wih he implemenaion of he exchange rae sysem reform, exchange rae volailiy increased, afer susained appreciaion of he longer period of ime, he RMB exchange rae in he recen period appeared sharp depreciaion. Exchange rae changes may cause flucuaions in he domesic price level, i.e. he exchange rae pass-hrough. Exchange rae passhrough is a ho issue in he field of inernaional economics, in which, an imporan issue is he exen o which exchange rae changes affec he prices [, 2]. In his paper, we invesigaed he pass-hrough effec of movemens in he RMB exchange rae on consumer prices. In paricular, we examined wheher RMB exchange rae pass-hrough o consumer prices was complee or no, and he impac of he exchange rae sysem reform had on he pass-hrough effec. To he end, we applied he error correcion model (ECM) o conduc an empirical analysis from he firs season of 994 o he las season of 23 period. This mehod can efficienly capure boh he long-erm and shorerm dynamic changes in variables. I also mainains he long-erm dynamic informaion of he relaionship beween variables, and ensures he effeciveness of he regression analysis. In he applicaion, his paper inroduced dummy variables ino he model. urhermore, i inroduced moneary policy variable ino he model, and seleced foreign price index consruced o measure he cos of foreign exporers. This model ook a lag respecively considering exchange rae and moneary policy variables have lagged effecs on he price index. The resuls showed ha he passhrough of exchange rae changes o consumer prices was incomplee. Long-erm effec of exchange rae pass-hrough o consumer prices was -.9. The degree of exchange rae pass-hrough was quie slow. In he sample period, he exchange rae pass-hrough effec was on he overall downward rend. The exchange rae sysem reform caused srucural changes in he pass-hrough effec. The overall pass-hrough effec was higher afer he reform han before, and he passhrough was lagging. The remaining pars of he aricle are organized as follows: Secion 2 reviews and summarizes he exising lieraure; Secion 3 presens a heoreical model ha has been consruced for sudying exchange rae pass-hrough o consumer prices; Secion 4 presens he empirical resuls; Secion 5 provides he main conclusions. 2. LITERATURE REVIEW Theoreical sudies on exchange rae pass-hrough daed back o he 96s, when he incompleeness of exchange rae pass-hrough was considered o be among he principal reasons for he failure of he law of one price and purchasing power pariy. Since he 98s he micro perspecive of incomplee exchange rae pass-hrough became dominan in heoreical research [3], hey aached imporance o he effec of markup in pricing-o-marke, and he role of produc 874-X/5 25 Benham Open

2 A Sudy on he Relaionship beween Exchange Rae and Consumer Prices The Open Cyberneics & Sysemics Journal, 25, Volume 9 3 differeniaion in he slope of produc demand curve, and heir influence on he exchange rae pass-hrough effec, bu a his phase sudies were mosly based on he parial equilibrium model analysis and did no consider price sickiness and expecaions. In he 99s, researchers paid more aenion o he macro level, lieraure [4] pioneered o inroduce nominal price rigidiies and marke imperfecions ino a micro-founded dynamic general equilibrium model, o build a new open-economy macroeconomics (NOEM), providing a new perspecive for sudies on exchange rae pass-hrough. Empirical sudies on he exchange rae pass-hrough issue began in he 98s. Mos of he sudies concerned he impac of exchange rae changes on impor prices. Also par of sudies focused on he impac of exchange rae changes on producer prices and consumer prices. There were some sudies of exchange rae changes on secor-specific impor or expor prices. Sudies had been concenraed mainly on developed counries, especially U.S., few of hem had been done on developing counries [5, 6]. Numerous sudies concluded ha exchange rae pass-hrough was incomplee, along he price chain, exchange rae pass-hrough rae decreased [7]. In addiion, here were differences in he degree of exchange rae pass-hrough beween indusries and counries, he level of pass-hrough in developing counries was generally higher han developed ones. The sudy also found ha he degree of exchange rae pass-hrough was no sable, bu showed a downward rend over ime, and he effecs of exchange rae pass-hrough o impor prices and consumer prices were appearing a downward rend [8, 9]. 3. TEORETICAL ANALYSIS Among exising sudies, exchange rae pass-hrough models are mosly esablished on he basis of profi maximizaion of firms. This paper sudied he relaionship beween exchange rae flucuaions and consumer prices, focusing on he pass-hrough mechanism of exchange rae changes o domesic consumer prices. By referring o lieraure [], a new open economy macroeconomic model was employed. They believed ha due o he presence of disribuion secors, disribuion coss were no sensiive o exchange rae changes, leading o incomplee exchange rae pass-hrough o oal consumer prices. Assuming ha producs domesic consumers spending are divided ino non-radable (N) and radable (T) producs, consumpion of non-radable and radable goods saisfies he consan elasiciy of subsiuion uiliy funcion. refers o consumpion weigh of rade goods, is he elasiciy of subsiuion beween non-raded and raded goods. Nonradable goods are produced by domesic manufacurers, radable goods can be divided ino domesic produced radable goods () and impored producs (). denoes consumpion weigh of domesic radable goods, is he elasiciy of subsiuion beween domesic radable goods and impored producs. The combinaion of oal consumer goods and nonradable goods is: = T + ( ) N C C C T T T T T T T T T = T + ( T ) C C C So, he oal consumer prices and he price of radable goods are: ( ) = + ( ) = + (4) where denoe consumer prices of domesic radable goods, impored producs, domesic non-radable goods respecively. Supposing furher ha non-radable goods, domesic radable goods and impored goods boh include producs in a coninuum of uni mass, respecively produced by a coninuum of monopolisically compeiive manufacurers, he elasiciy of subsiuion beween similar producs is. The combinaion of non-radables, domesic radable goods and impors respecively is: () Cj = C j i di j = ( N,, ). So ha he consumer demand funcion for a single produc j () i is: Cj () i = C j = ( N,, ). j j In he face of consumer demand, monopolisically compeiive manufacurers are respecively seing prices o maximize heir profis. The profi maximizaion funcion of non-raded firms is: i = i C i MC C i (5) () () () () Assuming ha domesic producion consiss of wo pars, he par is domesic inpus, here we assume labor inpu; anoher par is cerain impored inpus, μ means share of impors required for he producion of uni non-radable goods. μ refers o a funcion of exchange rae, changes in exchange raes will affec he raio of impored inpus used by manufacurers. rom (5) under an order condiion can be obained: W EW N = MCN = + μn ( E ) Z Z (6) N where W indicaes domesic uni labor wages, W means foreign labor wages, Z means he level of produciviy of () (2) (3)

3 32 The Open Cyberneics & Sysemics Journal, 25, Volume 9 Jun Liu various secors. E denoes he exchange rae, ha domesic currency price of foreign currency. Because radable goods require a cerain percenage of non-radable goods as disribuion coss in he sales process. Assuming ha sales of per uni of domesic radable goods and impors need m and m unis of non-radables. The share of disribuion coss is a funcion of he exchange rae, affeced by he exchange rae. Under hese assumpions, W + m ( E ) P N Z = MC = (7) EW + μ( E) Z EW = E MC = + m ( E ) PN Z (8) where μ represens share of impored inpus per uni of μ radable goods. is also a funcion of he exchange rae, affeced by he exchange rae. rom (6), (7), (8) can be drawn ha he elasiciies of exchange rae pass-hrough o consumer prices of home nonradable goods, radable goods and impors are: EW μn ( E) PN PN E N ( E) Z μ = = ( + ) PN E PN (9) m ( ) ( ) E PN m E PN ( + ) P P P E = = EW P E μ ( E) μ ( E) ( ) Z () + + P P ( ), ( E) P m E E P E m N = = P, N E P E P + () rom (9), (), () can be seen ha exchange rae passhrough ino consumer prices of radable goods only hrough impored inpus, he price of home radables can respond o exchange rae hrough wo channels: impored inpus in producion and disribuion secors. The exisence of disribuion secors reduces he proporion of impored pars in he final consumer prices. The magniude of his effec depends on wheher he disribuion secors make up, and wheher he price of non-radables responds o he exchange rae. urher from (9), (), () and (3), (4) can be drawn on he pass-hrough of exchange rae ino he aggregae consumer prices: PE, P T PT PN PN = + ( ) P P (2) T PE, PN PN PT P P = ( ) + P P PT when T PT P P ( T ) P PT + =, equaion (3) becomes T PE, P P P P, E = T + ( T) P P PN + ( ) P PN (3) (4) rom (2), (3), (4) can be seen ha he pass-hrough elasiciy of exchange rae ino he aggregae consumer prices is a weighed average of pass-hrough elasiciies ino raded and non-raded prices, boh of which depend on he relaive wage and produciviy parameers, he elasiciy of subsiuion beween producs, impored inpu used in domesic producion, and disribuion coss. Therefore, he pass-hrough elasiciy of he aggregae consumer prices depends on he price elasiciy, consumpion shares, impored inpus, and disribuion coss. Because of disribuion secors, disribuion coss are no sensiive o exchange rae flucuaions, so ha pass-hrough of movemens in he exchange rae o final consumer prices is incomplee, resuling in incomplee exchange rae pass-hrough o aggregae consumer prices. 4. ECONOMETRIC MODEL AND EMPIRICAL ANALYSIS 4.. Model Specificaion According o he heoreical model of exchange rae passhrough and pracices of previous sudies, we esablished he pass-hrough equaion of he relaionship beween consumer prices and exchange rae changes: LCPI = + LNER + 2 LM LGDP + 4 LWPI + (5) (=,2,3 n) where LCPI, LNER, LM2, LGDP, and LWPI respecively refer o he consumer price index, he RMB nominal effecive exchange rae, money supply, gross domesic produc, and foreign price index. All of he variables are expressed in logarihms. LCPI, LNER, LM2, LGDP, and LWPI~I() and cerain linear combinaions of he variables are saionary. We can make use of generaed from equaion (5) o consruc an error correcion model. The model seings are as follows: q i i 2i 2i i= i= LCPI = LNER + LM + 3 LGDP + 4 LWPI + 5 AR() (6) + + μ 6

4 A Sudy on he Relaionship beween Exchange Rae and Consumer Prices The Open Cyberneics & Sysemics Journal, 25, Volume 9 33 where p, q represen he LNER, LM2 lags respecively. ere, he lags are aken because of he lagging impac ha he exchange rae and moneary policy changes have on he price index. This ofen manifess iself over several periods. In 25, China reformed he exchange rae regime by moving ino a managed floaing exchange rae sysem based on marke supply and demand wih reference o a baske of currencies, he exchange rae sysem appeared significanly changes. The exchange rae sysem reform had an imporan impac on he pass-hrough effec, followed by he empirical analysis of his impac. In his paper, by inroducing dummy variables, we made a judgmen compared wih he passhrough elasiciy before and afer he reform. Assuming ha, before he exchange rae sysem reform D = afer he exchange rae sysem reform, We consruced he model as follows: LCPI = + LNER + D LNER q + i LNERi + 2i LM 2i + 3LGDP i= i= + LWPI + AR() + + μ We presened following hypoheses: (7) : =, meaning here are no saisical differences in he pass-hrough effec before and afer he exchange rae sysem reform. :, meaning here are saisically significan differences in he pass-hrough effec before and afer he exchange rae sysem reform. The above hypoheses will be esed in he empirical analysis. If he coefficiens of he dummy variable are significan saisically hen he null hypohesis will be rejeced Sources of Daa and Processing Wih he use of Eviews 6., we seleced quarerly daa from he firs season of 994 o he las season of 23 o conduc our empirical analysis. We seleced he consumer price index as a proxy variable for consumer prices, and seleced he nominal effecive exchange rae as a proxy variable for he exchange rae, aking he indirec quoaion, an increase of he index means exchange rae appreciaion. By referring o lieraure [2], we uilized foreign price index as a proxy variable o measure he cos of foreign exporers. WPI = ( CPI Neer / Reer), Neer and Reer denoe nominal effecive exchange rae and real effecive exchange rae. By referring o lieraure [], we inroduced moneary policy, reflecing he moneary policy facor. Given he differen base periods for he original daa, we convered various indexes o he firs season of 994 as he base period. In order o eliminae he impac of seasonal facors, he variables were seasonally adjused. China's consumer price index, money supply and GDP were derived from he China Economic Informaion Nework saisics daabase. The effecive exchange rae was obained from he IM Inernaional inancial Saisics (IS) Empirical Analysis Uni roo es In order o produce more robus resuls when sudying he relaionship beween variables, i is required for he LCPI, LNER, LM2, LGDP, and LWPI sequences o conduc a uni roo (AD) es. According o Informaion Crierion (AIC) and Schwarz Crierion (SC) we chose lags according o he principle of minimum. The null hypohesis is he case ha a uni roo is presen. Table shows he uni roo es resuls. The uni roo es shows ha a he 5% significance level, he LCPI, LNER, LM2, LGDP, and LWPI original series are non-saionary series. owever, afer he firs difference hey all become saionary series. Therefore, we can consider ha Table. AD es resuls. Series AD Saisics % Level Threshold 5% Level Threshold Tes Resuls LCPI Non-saionary LNER Non-saionary LM Non-saionary LGDP Non-saionary LWPI Non-saionary LCPI Saionary LNER Saionary LM Saionary LGDP Saionary LWPI Saionary

5 34 The Open Cyberneics & Sysemics Journal, 25, Volume 9 Jun Liu he LCPI, LNER, LM2, LGDP, and LWPI are inegraed wih order process Co-Inegraion Analysis Since he premise of he error correcion model is he presence of a co-inegraion relaionship beween variables, we need o conduc a co-inegraion es. This is explained by he fac ha he variables are firs difference saionary series. Then, we applied he EG wo-sep mehod o do a coinegraion es for he variables o deermine he long-erm sable relaionship among hem. irs, we performed he OLS regression model. Then we performed an AD es for he residual sequence. Table 2 presens he resuls. Table 2. Co-inegraion equaion resuls. Variable Coefficien T-Saisics LNER -.9 * -.9 LM2.252 ** LGDP *** LWPI.748 *** C.26.7 R 2.92 saisics Noes: ***, **, * indicae saisical significance a he %, 5%, % levels, respecively. The residuals of he regression equaion above are saionary. Therefore, he model specificaion is reasonable. I indicaes he presence of a long-erm co-inegraion relaionship beween LCPI, LNER, LM2, LGDP and LWPI. The resuls also poin ou ha he long-erm exchange rae passhrough o consumer prices is no complee. Meanwhile, he pass-hrough effec of RMB exchange rae on consumer prices is -.9. This means ha he RMB nominal effecive exchange rae appreciaes by % and consumer prices fall.9 percenage poins. rom lieraure abroad, i can be seen ha he effec of exchange rae pass-hrough o consumer prices is quie low. Lieraure [2] showed ha in he long-erm he level of exchange rae pass-hrough o European counries' consumer prices was, in order, rance -.7, Germany -.8, Ialy -.2, Neherlands -., Span -.8. Visibly, he degree of exchange rae pass-hrough in China is greaer han developed counries. Compared wih oher developing counries, lieraure [3] showed ha long-erm pass-hrough elasiciies of consumer prices in Asian counries were respecively Indonesia -.57, Korea -.3, Philippines -.5, Thailand -.26, Singapore -.2. As can be seen from ha he resul of China is approximae o hese counries. By conras, he level of exchange rae pass-hrough in developing counries is greaer han developed ones. As a developing counry, China does no consiue an excepion. To furher examine he specific changes in he process of pass-hrough coefficiens, we applied he rolling regression mehod o conduc an analysis. igure shows, he lengh of he rolling regression sample aken in he figure is 4 quarers, he sample ime spans 994Q-23Q4, a oal of 8 quarers, we ge 4 pass-hrough coefficiens. In ig. () can be found in he sample period, pass-hrough coefficiens flucuae up and down, showing he overall downward rend. So, how do we accoun for his phenomenon? This paper ries o discuss i from he inflaionary environmen perspecive. According o moneary policy repor released by Bank of Canada in November 2 ha he low inflaion environmen will change he pricing behaviour of exporers. When he inflaion rae coninues o remain a a low level, people will hink he cenral bank o mainain low inflaion. Moneary policy is credible, low inflaion is expeced o persis. As a resul, firms will no easily change he cos hanks o he economic shocks o ransfer o he final par of consumer prices. irs, menu cos consideraions from price adjusmen; Second, if enerprises ransfer cos changes o he prices, he cenral bank will ake policy measures o mainain a sable price level, companies may face a lack of marke share. or China, before he hird quarer of 997, he level of inflaion was greaer, he average inflaion rae reached 4.74%, of which, in 994 he inflaion rae came up o 2.7%. During his period, inflaion expecaions rose, moneary policy credibiliy declined, in his case, he pass-hrough ig. (). Rolling regression pass-hrough coefficiens.

6 A Sudy on he Relaionship beween Exchange Rae and Consumer Prices The Open Cyberneics & Sysemics Journal, 25, Volume 9 35 effec of exchange rae changes o price levels was relaively prominen. Afer he fourh quarer of 997, because of he impac of he financial crisis and lack of domesic demand, economic growh was slow, price levels dropped significanly, inflaion was expeced o change, a his sage, he level of exchange rae pass-hrough was relaively low. Afer he second quarer of 23, signs of inflaion appeared in he economy, bu compared wih he early 99s, he level of inflaion was lower during his period, he average inflaion rae was 3%. Since he second half of 28, affeced by he inernaional financial crisis, economic growh declined, he price level fell sharply. Enering he period of he posfinancial crisis, he pace of economic growh slowed, inflaion was a a low level, in his environmen companies absorbing exchange rae flucuaions while keeping prices unchanged would be a wise choice, he exchange rae passhrough effec was relaively small The Impac of Exchange Rae Sysem Reform on he Pass-Through Effec Based on before and afer exchange rae sysem reform in he model (7), ha is bounded by he hird quarer of 25, by comparing he pass-hrough elasiciy esimaes, we examined if here were differences in he exen of exchange rae pass-hrough o consumer prices. By execuing he sofware, we obained he following resuls. Table 3 shows ha, before he reform he RMB exchange rae pass-hrough elasiciy of consumer prices is -.5, afer he reform he pass-hrough rae is Visibly he response of consumer prices is negaive, he exchange rae sysem reform has differen impacs on he pass-hrough effec, he level of exchange rae pass-hrough afer he reform is greaer han before. The hypohesis holds. This suggess ha he pass-hrough effec of exchange rae changes on consumer prices, due o he adjusmen of he exchange rae sysem, on he whole gradually and significanly enhances. In his regard, we believe ha before he reform, susainable balance of paymens surplus formed arden expecaions of RMB appreciaion in he marke, wih he influx of shor-erm capial. Afer he reform RMB exchange rae flexibiliy enhanced, exchange rae changes beer refleced he supply and demand of foreign exchange in he marke, effecively easing he pressure of RMB appreciaion for a long ime, bu also helped o alleviae he srong expecaions of furher appreciaion from home and abroad, o reduce foreign capial inflows, relaively improving he ighening effec of long-erm RMB appreciaion on consumer prices, resuling in an increase in he exchange rae passhrough effec Impulse Response uncion Analysis To furher illusrae he impac of he reform has on he pass-hrough effec, he nex we made he impulse response funcion analysis. Impulse response funcion (IR) could measure he magniude and ime of he impac of a sandard deviaion (innovaion) from a random disurbance erm on curren or fuure values of variables. This paper made an analysis in he VAR sysem. We separaely esimaed VAR before and afer he reform, examining responses of consumer prices o exchange rae disurbances, and hen compared he wo reacions. Table 3. The pass-hrough effec before and afer he reform. Before he Reform Afer he Reform Variable Coefficien T-Saisics Coefficien T-Saisics LNER -.5 ** * LNER(-) LM * ** 2.34 LM2(-) * LGDP * 2.4 LWPI.987 *** *** ECM(-) * *** AR().75 *** ** 2.87 R DW Noes: ***, **, * indicae saisical significance a he %, 5%, % levels, respecively. Table 4. Cumulaive impulse response resuls. Time Before Afer

7 36 The Open Cyberneics & Sysemics Journal, 25, Volume 9 Jun Liu As can be observed in he above Table 4, for he exchange rae shock, he responses of prices are negaive. Moreover, he reacions are lagging, wih ime going on, he cumulaive responses of prices enhance. I can be found responses of consumer prices on he whole are higher afer he reform han before, and in differen periods are higher han he level before he reform. CONCLUSION Exchange rae pass-hrough is a ho issue in he field of inernaional economics. This paper sudied he influence of RMB nominal exchange rae changes had on consumer prices. We applied he error correcion model (ECM) o perform an empirical analysis on quarerly daa from he firs season of 994 o he las season of 23. The resuls showed ha he pass-hrough of RMB exchange rae changes o consumer prices was incomplee. In he long erm, he pass-hrough elasiciy of exchange rae flucuaions o consumer prices was -.9. The degree of exchange rae passhrough was quie slow. In he sample period, he exchange rae pass-hrough effec was on he overall downward rend. The exchange rae sysem reform caused srucural changes in he pass-hrough effec. The overall pass-hrough effec was greaer afer he reform han before, and he passhrough was lagging. CONLICT O INTEREST The auhor confirms ha his aricle conen has no conflic of ineres. ACKNOWLEDGEMENTS This work is suppored by he projec of he Naional Social Science und, China (No.2BJY57). REERENCES [] C. Bes, and M. B. Devereux, Exchange rae dynamics in a model of pricing-o-marke, Journal of Inernaional Economics, vol. 5, pp , 2. [2] J. M. Campa, and L. S. Goldberg, Exchange rae pass-hrough ino impor prices, The Review of Economics and Saisics, vol. 87, pp , 25. [3] R. Dornbusch, Exchange raes and prices, American Economic Review, vol. 77, pp. 99-6, 987. [4] M. Obsfeld, and K. Rogoff, Exchange rae dynamics redux, The Journal of Poliical Economy, vol. 3, pp , 995. [5] J. Menon, Exchange rae pass-hrough, Journal of Economic Surveys, vol. 9, pp , 995. [6]. Bouakez, and N. Rebei, as exchange rae pass-hrough really declined? Evidence from Canada, Journal of Inernaional Economics, vol. 75, pp , 28. [7] N. Banik, and B. Biswas, Exchange rae pass-hrough in he U.S. auomobile marke: a coinegraion approach, Inernaional Review of Economics and inance, vol. 6, pp , 27. [8] K. Barhoumi, Differences in long run exchange rae pass-hrough ino impor prices in developing counries: an empirical invesigaion, Economic Modelling, vol. 23, pp , 26. [9] J. Beirne, and M. Bijserbosch, Exchange rae pass-hrough in cenral and easern European EU Member Saes, Journal of Policy Modeling, vol. 33, pp , 2. [] L. S. Goldberg, and J. M. Campa, The sensiiviy of he CPI o exchange raes: disribuion margins, impored inpus, and rade exposure, The Review of Economics and Saisics, vol. 92, pp , 2. [] D. C. Parsley, and. Popper, Exchange raes, domesic prices, and cenral bank acions: recen U.S. experience, Souhern Economic Journal, vol. 64, pp , 998. [2]. üfner and M. Schröder, Exchange rae pass-hrough o consumer prices: a European perspecive, Cenre for European Economic Research, Available from: hp://ssrn.com/absrac= [3] T. Io, and K. Sao, Exchange rae changes and inflaion in Pos- Crisis Asian economies: vecor auoregression analysis of he exchange rae pass-hrough, Journal of Money, Credi and Banking, vol. 4, pp , 28. Received: June, 25 Revised: July 29, 25 Acceped: Augus 5, 25 Jun Liu; Licensee Benham Open. This is an open access aricle licensed under he erms of he (hps://creaivecommons.org/licenses/by/4./legalcode), which permis unresriced, noncommercial use, disribuion and reproducion in any medium, provided he work is properly cied.