Currency Crash and Exchange Rate Pass-Through A Tale of Two Crises in Serbia

This paper demonstrates that the two completely different inflation outcomes of the currency crises in Serbia in the 1980s and in 2008-9, namely high and low inflation, respectively, can be explained by two distinct economic policy stances that can be traced back to different institutional environments. Large second-round effects of currency depreciation on inflation are detected in the former but not the latter crisis, and the reported estimates suggest that these effects were propelled by monetary accommodation and wage indexation. A side result was that exchange rate pass-through into prices was moderate and slow in Serbia in the 2000s, remaining unchanged even in the currency crash of 2008-9. These findings are consistent with recent evidence for developing economies.