Exchange Rate Pass-Through in Acceding Countries: The Role of Exchange Rate Regimes

This paper analyzes the link between the choice of exchange rate regime and inflationary performance in countries acceding to the EU. Estimation of pass-through effect of exchange rate changes to CPI inflation is complemented by I(2) cointegration analysis of stochastic nominal trends. The results allow a clear ranking of countries according to the size of the pass-through effect and the importance of exchange rate shocks to overall inflationary performance. The size of the pass-through effect can be associated with the degree of accommodation in the exchange rate policy. The paper concludes that an accommodative exchange rate policy is one of the main sources of inflationary pressures in accession countries.