Exchange rates determine price shocks impact on domestic economies.
The article examines how different exchange rate systems affect how changes in external prices impact domestic prices in European transition economies. By analyzing exchange rate pass-through, the researchers found that the dynamics of this process vary depending on the exchange rate regime and time period studied. They used a VAR model to show that unexpected shifts in exchange rates can influence domestic price indexes differently, highlighting the importance of understanding how exchange rates transmit external shocks to the national economy.