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Exchange rate pass-through and inflation: A nonlinear time series analysis

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  • Shintani, Mototsugu
  • Terada-Hagiwara, Akiko
  • Yabu, Tomoyoshi

Abstract

This paper investigates the relationship between the exchange rate pass-through (ERPT) and inflation by estimating a nonlinear time series model. Based on a simple theoretical model of ERPT determination, we show that the dynamics of ERPT can be well approximated by a class of smooth transition autoregressive (STAR) models using the past inflation rate as a transition variable. We employ several U-shaped transition functions in the estimation of the time-varying ERPT to US domestic prices. The estimation result suggests that declines in the ERPT during the 1980s and 1990s are associated with lowered inflation.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 32 (2013)
Issue (Month): C ()
Pages: 512-527

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Handle: RePEc:eee:jimfin:v:32:y:2013:i:c:p:512-527

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Web page: http://www.elsevier.com/locate/inca/30443

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Keywords: Import prices; Inflation indexation; Pricing-to-market; Smooth transition autoregressive models; Sticky prices;

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References

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Citations

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Cited by:
  1. Ben Cheikh, Nidhaleddine, 2012. "Non-linearities in exchange rate pass-through: Evidence from smooth transition models," MPRA Paper 39258, University Library of Munich, Germany.
  2. Nidhaleddine Ben Cheikh & Waël Louhichi, 2014. "Revisiting the Role of Inflation Environment in the Exchange Rate Pass-Through: A Panel Threshold Approach," FIW Working Paper series 132, FIW.
  3. Murase, Koichi, 2013. "Asymmetric effects of the exchange rate on domestic corporate goods prices," Japan and the World Economy, Elsevier, vol. 25, pages 80-89.
  4. Ben Cheikh, Nidhaleddine, 2013. "The Pass-Through of Exchange Rate in the Context of the European Sovereign Debt Crisis," MPRA Paper 47308, University Library of Munich, Germany.
  5. Naz, Farah & Mohsin, Asma & Zaman, Khalid, 2012. "Exchange rate pass-through in to inflation: New insights in to the cointegration relationship from Pakistan," Economic Modelling, Elsevier, vol. 29(6), pages 2205-2221.
  6. Herger Nils, 2013. "Market Entries and Exits and the Nonlinear Behaviour of the Exchange Rate Pass-Through into Import Prices," Working Papers 13.08, Swiss National Bank, Study Center Gerzensee.
  7. Daniels, Joseph P & VanHoose, David D, 2010. "Exchange-Rate Pass Through, Openness, and the Sacrifice Ratio," Working Papers and Research 2010-05, Marquette University, Center for Global and Economic Studies and Department of Economics.
  8. Nidhaleddine Ben Cheikh, 2013. "Nonlinear Mechanism of the Exchange Rate Pass-Through: Does Business Cycle Matter?," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201306, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
  9. Miguel A. León-Ledesma & Reginaldo P. Nogueira Júnior, 2010. "Is low inflation really causing the decline in exchange rate pass-through?," Studies in Economics 1002, Department of Economics, University of Kent.
  10. Ben Cheikh, Nidhaleddine, 2012. "Asymmetric exchange rate pass-through in the Euro area: New evidence from smooth transition models," Economics Discussion Papers 2012-36, Kiel Institute for the World Economy.
  11. Atsushi Sekine & Takayuki Tsuruga, 2014. "Effects of Commodity Price Shocks on Inflation: A Cross Country Analysis," Discussion papers e-13-006, Graduate School of Economics Project Center, Kyoto University.

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