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Nonlinear exchange rate pass-through and monetary policy credibility: Evidence from Korea

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  • Kwon, Janghan
  • Shin, Woongjae

Abstract

Applying a smooth transition vector autoregression model with survey expectation data, we investigate the nonlinear effects of exchange rate shocks on inflation across monetary policy credibility states in Korea. We find that the impact of the exchange rate shocks is statistically larger in the low credibility regime, particularly in the short run. Our findings suggest that monetary policy credibility plays a significant role in maintaining for price stability in Korea.

Suggested Citation

  • Kwon, Janghan & Shin, Woongjae, 2023. "Nonlinear exchange rate pass-through and monetary policy credibility: Evidence from Korea," Economics Letters, Elsevier, vol. 230(C).
    • Handle: RePEc:eee:ecolet:v:230:y:2023:i:c:s0165176523002598
    DOI: 10.1016/j.econlet.2023.111234
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    References listed on IDEAS

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    More about this item

    Keywords

    Exchange rate pass-through; Monetary policy credibility; Smooth transition vector autoregressions;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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