Exchange Rate Pass-Through to External and Internal Prices: A Developing Country Perspective

We estimate the exchange rate pass-through to external and internal prices of a developing country, specifically, Bangladesh. The study also examines whether the tradition view that exchange rate pass-through should be ‘full ’ for developing countries. We construct some variables which are not readily available in existing databases. A full sample estimation indicates that exchange rate pass-through to external prices is ‘full’, however, pass-through to internal prices is ‘partial’. Rolling regressions indicate that the response of external prices to exchange rate movement has been constantly around unity until 2003, however, it has fallen rapidly in subsequent years. Response to internal prices has been found unstable and relatively small