This paper examines the degree of Exchange Rate Pass-Through (ERPT) to prices in 12 emerging markets in Asia, Latin America and Central and Eastern Europe. The results, based on three alternative vector autoregressive models, partly overturn the conventional wisdom that ERPT into both import and consumer prices is always higher in `emerging' than in `developed' countries. For emerging markets with only one digit inflation (most notably the Asian countries), pass-through to import and consumer prices is found to be low and not very dissimilar from the levels of developed economies. The paper also finds robust evidence for a positive relationship between the degree of the ERPT and inflation, in line with Taylor's hypothesis once two outlier countries—Argentina and Turkey— are excluded from the analysis. Finally, the presence of a positive link between import openness and ERPT, while plausible theoretically, finds only weak empirical support.

Over the past two decades a large volume of economic literature on Exchange Rate Pass-Through (ERPT) has developed. Starting from different standpoints, the empirical literature examines the role played by the ERPT in small and large economies. Studies conducted for the case of developed countries include McCarthy (2000) Anderton (2003), Hahn (2003), Campa and Goldberg (2004), Gagnon and Ihrig (2004), Campa et al. (2005), Ihrig et al. (2006). There is also a burgeoning literature applied to emerging market economies, including cross-country comparisons as in Frankel et al. (2005), Mihaljek et al. (2000) and Choudhri and Hakura (2006).

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