Ramirez, and Waggoner 2014). Finally, compared to previous studies, this paper is more focused on EMDE-specific characteristics, including monetary policy frameworks, participation in GVCs, and foreign currency invoicing.

The next sections offer key stylized facts about the link between inflation and exchange rate movements. Section 3 introduces empirical model and data. Section 4 present estimates of shockspecific ERPTRs, and Section 5 demonstrate the importance of structural factors and countryspecific characteristics. The conclusion discusses policy implications and suggests avenues for future research.

# 2. Stylized facts: Exchange rate movements and inflation

This section examines the historical relationship between changes in the nominal effective (tradeweighted) exchange rate and consumer price inflation. A depreciation (decline in the effective exchange rate) is expected to cause the domestic price of imports to rise and, depending on a host of factors, higher consumer prices (a positive pass-through). The first step in this descriptive analysis examines the impact of large currency movements on consumer price inflation in crosscountry event studies. The second step examines the stability of the relationship between inflation and currency movements over time.

# 2.1. Inflation and exchange rate movements: Event study

The event study presented in this section explores episodes of large exchange rate fluctuations, defined as quarterly movements in excess of 5 percent across 34 advanced economies and 138 EMDEs. The rationale for focusing on large currency fluctuations is twofold. First, such episodes are more likely to induce detectable changes in prices throughout the entire production chain. This helps trace factors influencing the exchange rate pass-through across countries. Second, such an event study allows the estimation of the pass-through conditional on the size and direction of the exchange rate movement. A common assumption in the literature is that the relationship between exchange rate movements and inflation is linear and symmetric. However, prices may respond differently to large changes in the exchange rate, and depreciations may generate an asymmetric reaction relative to appreciations. Computing unconditional pass-throughs associated with different types of exchange rate movements can help disentangle these effects.

Overall, depreciations of between 5 and 10 percent per quarter have been associated with a low unconditional pass-through over the past two decades (Figure 1). Median estimates of the same quarter pass-through are close to zero in advanced economies and around +0.1 for EMDEs (a 10 percent depreciation in the median EMDE triggers a 1 percent increase in consumer prices after one quarter). Depreciations of between 10 and 20 percent in a given quarter were generally accompanied by a higher pass-through, with median values of +0.1 for advanced economies and +0.2 for EMDEs. Depreciations in excess of 20 percent were associated with pass-throughs of around +0.4 in both groups of countries, but these events have been far less common recently, which reduces the reliability of the estimated pass-throughs.

The event study also confirms a broad-based decline in the pass-through among EMDEs over the past two decades. For depreciations of between 5 and 10 percent, the median pass-through in EMDEs fell by a factor of three from 1980-98 to 1998-2017. This decline came with a reduction in the frequency and severity of currency depreciations. Prior to 1998, large depreciation episodes in EMDEs clustered around periods of U.S. dollar appreciation, often associated with a tightening 4