US inflation and the dollar exchange rate: a vector error correction model
AbstractMany studies investigating the relation between inflation and exchange rates have found that exchange rates influenced inflation, while other studies have failed to do so or reported mixed results. These findings, however, might be spurious as the majority of the earlier investigations suffered from misspecifications of one kind or another. The current paper addresses the problem by employing an up-to-date and powerful cointegration method developed by Johansen (1988). In a system of five-equation vector error correction model, this paper finds that the US inflation, exchange rate, money supply, income, and interest rate are cointegrated. The cointegration analysis of the data covering the 1973-95 period reveals that the dollar exchange rate has a significant negative impact on the inflation measured by the producer price index. It is further established that the exchange rate Granger causes the inflation.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal Applied Economics.
Volume (Year): 30 (1998)
Issue (Month): 5 ()
Contact details of provider:
Web page: http://www.tandfonline.com/RAEC20
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Osmani Teixeira de Carvalho de Guillén & Carlos Hamilton Vasconcelos Araújo, 2005. "O Mecanismo De Transmissão Da Taxa De Câmbio Para Índices De Preços: Uma Análise Vecm Para O Brasil," Anais do XXXIII Encontro Nacional de Economia [Proceedings of the 33th Brazilian Economics Meeting] 034, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
- Carlos José García & Jorge Enrique Restrepo, 2001. "Price Inflation and Exchange Rate Pass-Through in Chile," Working Papers Central Bank of Chile 128, Central Bank of Chile.
- 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.
- Billmeier, Andreas & Bonato, Leo, 2004.
"Exchange rate pass-through and monetary policy in Croatia,"
Journal of Comparative Economics,
Elsevier, vol. 32(3), pages 426-444, September.
- Leo Bonato & Andreas Billmeier, 2002. "Exchange Rate Pass-Through and Monetary Policy in Croatia," IMF Working Papers 02/109, International Monetary Fund.
- Prasad S. Bhattacharya & Dimitrios D. Thomakos, 2006.
"Forecasting Industry-Level CPI and PPI Inflation: Does Exchange Rate Pass-Through Matter?,"
2006_10, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
- Bhattacharya, Prasad S. & Thomakos, Dimitrios D., 2008. "Forecasting industry-level CPI and PPI inflation: Does exchange rate pass-through matter?," International Journal of Forecasting, Elsevier, vol. 24(1), pages 134-150.
- Dimitrios D. Thomakos & Prasad S. Bhattacharya, 2004. "Forecasting Industry-Level CPI and PPI Inflation: Does Exchange Rate Pass-Through Matter?," Econometric Society 2004 Australasian Meetings 293, Econometric Society.
- Peter Rowland, 2003. "Exchange Rate Pass-Through To Domestic Prices: The Case Of Colombia," BORRADORES DE ECONOMIA 002683, BANCO DE LA REPÚBLICA.
- Schröder, Michael & Hüfner, Felix P., 2002. "Exchange rate pass-through to consumer prices: a European perspective," ZEW Discussion Papers 02-20, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- Prudence Serju, 2003. "Monetary Conditions and Core Inflation: an Application of Neural Networks," Money Affairs, Centro de Estudios Monetarios Latinoamericanos, vol. 0(1), pages 31-50, January-J.
- Peter Rowland, . "Exchange Rate Pass-Throught to Domestic Prices: The Case of Colombia," Borradores de Economia 254, Banco de la Republica de Colombia.
- Beirne, John & Bijsterbosch, Martin, 2011. "Exchange rate pass-through in central and eastern European EU Member States," Journal of Policy Modeling, Elsevier, vol. 33(2), pages 241-254, March.
- Carlos José García T. & Jorge Enrique Restrepo, 2003. "Price Inflation and Exchange Rate Pass-Trough in Chile," Money Affairs, Centro de Estudios Monetarios Latinoamericanos, vol. 0(1), pages 69-88, January-J.
- Peter Rowland, 2004. "Exchange Rate Pass-Through To Domestic Prices: The Case Of Colombia," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE.
- Zulfiqar Hyder & Sardar Shah, 2005.
"Exchange Rate Pass-Through to Domestic Prices in Pakistan,"
- Zulfiqar Hyder & Sardar Shah, 2005. "Exchange Rate Pass-Through to Domestic Prices in Pakistan," Macroeconomics 0510020, EconWPA.
- Jayaraman, T. K. & Choong, Chee-Keong, 2011. "Impact of exchange rate changes on domestic inflation: a study of a small Pacific Island economy," MPRA Paper 33719, University Library of Munich, Germany.
- Beirne, John & Bijsterbosch, Martin, 2009. "Exchange Rate Pass-through in Central and Eastern European Member States," Working Paper Series 1120, European Central Bank.
- Aliyu, Shehu Usman Rano & Yakub, Ma'aji Umar & Sanni, Ganiyu Kayode & Duke, Omolara, 2009. "Exchange Rate Pass-through in Nigeria: Evidence from a Vector Error Correction Model," MPRA Paper 25053, University Library of Munich, Germany, revised 29 Mar 2010.
- Fabrizio Coricelli & Boštjan Jazbec & Igor Masten, 2004. "Exchange Rate Policy and Inflation in Acceding Countries: The Role of Pass-through," William Davidson Institute Working Papers Series 2004-674, William Davidson Institute at the University of Michigan.
- Igor Masten & Bostjan Jazbec & Fabrizio Coricelli, 2004. "Linfluence du régime de change sur linflation dans les pays adhérents," Économie et Prévision, Programme National Persée, vol. 163(2), pages 51-61.
- René Lalonde & Zhenhua Zhu & Frédérick Demers, 2003. "Forecasting and Analyzing World Commodity Prices," Money Affairs, Centro de Estudios Monetarios Latinoamericanos, vol. 0(1), pages 1-30, January-J.
- Víctor Tiberio Olivo, 2003. "Taylor Rules and Inflation Targeting do not Work with Systematic Foreign Exchange Market Intervention," Money Affairs, Centro de Estudios Monetarios Latinoamericanos, vol. 0(1), pages 51-67, January-J.
- Martins Bitans, 2004. "Pass-Through of Exchange Rates to Domestic Prices in East European Countries and the Role of Economic Enviroment," Working Papers 2004/04, Latvijas Banka.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.