Exchange rate pass-through to inflation in Mongolia

This paper examines the impact of exchange rates on the domestic consumer prices in Mongolia by analysing data from January 1998 to January 2008. The empirical model is a recursive VAR, suggested by McCarthy (2000). Impulse responses and variance decompositions are used to measure the exchange rate pass-through to consumer price inflation. The paper finds high pass-through of exchange rate to inflation and low persistence and volatility of the exchange rate. The major findings of this paper are: (i) the impact of exchange rate on consumer prices is over after about a year months, but is mostly felt in the 6-7 months. (ii) Exchange rate pass-through to consumer prices rises from about 10 percent in the fifth month of the shock to about 55 percent in ninth months. (iii) Exchange rate explains about 7-8 percent of the variation in consumer price inflation