ABSTRACT
The aim of this research article is to analyze the Exchange Rate Pass-Through (ERPT) and consumer prices for the case of Southeast Europe, considering eight transition economies. Monetary systems alongside trade openness of these economies are essential factors for macroeconomic stability. Therefore, this study utilizes a balanced panel dataset covering two decades and adopting a Fixed Effects econometric framework through which the effects of exchange rate fluctuations, real economic growth, and trade integration on the Consumer Price Index (CPI) are estimated. Also, diagnostic assessments, such as Multicollinearity and Panel Unit Root analyses are performed to ensure the consistency and efficiency of the model. The results indicate a significant correlation between delayed exchange rate fluctuations and inflation, further intensified by the structural reliance of these countries on international trade. Trade openness serves as a primary driver of external price shocks, indicating that inflation in the Western Balkans is predominantly an imported occurrence. The paper concludes with policy recommendations for regional central banks, highlighting the necessity for proactive monetary initiatives to alleviate the lagged impacts of currency fluctuation on consumer purchasing power.
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