Exchange rate pass-through after the crisis : the Hungarian experience

Exchange rate movements influence prices through numerous channels. In this paper we provide empirical evidence on pass-through of exchange rate movements into consumer prices. The pass-through depends on a number of factors, and its size may vary over time. In recent years, prices have responded less to a depreciation of the exchange rate than would have been warranted by estimates conducted before the crisis. Before the crisis a 1 per cent change in the exchange rate resulted in a 0.3 per cent change in price level after two years. Currently, the pass-through is estimated to be in the range of 0.1-0.2 per cent over a two-year horizon. Both cyclical (subdued demand) and structural (decline in level of inflation) factors have contributed to the weakening of the relationship.