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Shock-dependent Exchange Rate Pass-through into Different Measures of Price Indices in the Case of Romania

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  • Cristina ANGHELESCU

    (The Bucharest University of Economic Studies)

Abstract

The paper presents a new research direction in quantifying the exchange rate pass-through (ERPT) coefficient. Innovations brought to the standard approach refer to incorporating changes in economic conditions behind currency movements. Before applying the new methodology, fluctuations of the transmission magnitude are illustrated through a timevarying coefficient regression. At the same time, by estimating an asymmetric error correction model, different responses of the price indices according to the sign of the exchange rate movements are captured. In order to quantify the transmission mechanism in the context of shocks, a sign and zero restrictions Bayesian VAR is estimated. Empirical evidence show that shock-dependent transmission is heterogeneous. The highest values of the ERPT coefficient result when the exchange rate movements are caused by a monetary policy shock. Nevertheless, this shock has a reduced contribution in explaining the exchange rate dynamics in the case of Romanian economy.

Suggested Citation

  • Cristina ANGHELESCU, 2022. "Shock-dependent Exchange Rate Pass-through into Different Measures of Price Indices in the Case of Romania," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 88-104, October.
    • Handle: RePEc:rjr:romjef:v::y:2022:i:3:p:88-104
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    More about this item

    Keywords

    exchange rate pass-through; asymmetries; macroeconomic shocks; sign and zero restrictions Bayesian VAR;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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