966
Number: 01/2017
Author(s): Vugar Rahimov, Nigar Jafarova
Language: English
Date: February 9, 2017
Abstract: In this study, we explore the pass-through of exchange rate fluctuations to domestic CPI and its components in Azerbaijan. Using the data of 2003:Q1-2016:Q2, we estimate a VAR model and find significant but incomplete pass-through. The accumulated pass-through to aggregate CPI is 28 percent within one year. According to our empirical findings, the largest pass-through (ERPT) is observed in the non-food component of CPI which is 41 percent after twelve months period. Since the ERPT is an essential ingredient of price developments in Azerbaijan, it should be assessed precisely and taken into account in monetary policy decisions and inflation forecasting.
Keywords: Exchange rate pass-through, VAR model, disaggregated CPI, oil exporting countries
JEL classification: F31, E31, E52, C51, C52
