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State space models for the exchange rate pass-through: determinants and null/full pass-through hypotheses

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  • Rafael Martins de Souza
  • Luiz Felipe Pires Maciel
  • Adrian Pizzinga

Abstract

In this article, we formulate linear Gaussian state space models for the estimation of the exchange rate pass-through of the Brazilian Real against the US Dollar, using monthly data from August 1999 to August 2008. The state space/Kalman filtering framework allows the investigation of some empirical aspects previously suggested in the literature, such as time-varying coefficients and null/full pass-through hypotheses. We also test whether some theoretical 'determinants' of the pass-through are statistically significant in the period considered. The principal findings are as follows: (1) the data offer strong support to a time-varying pass-through; and (2) the variance of the exchange rate pass-through, the monetary policy and the trade flow have shown to be relevant determinants of the exchange rate pass-through.

Suggested Citation

  • Rafael Martins de Souza & Luiz Felipe Pires Maciel & Adrian Pizzinga, 2013. "State space models for the exchange rate pass-through: determinants and null/full pass-through hypotheses," Applied Economics, Taylor & Francis Journals, vol. 45(36), pages 5062-5075, December.
    • Handle: RePEc:taf:applec:v:45:y:2013:i:36:p:5062-5075
    DOI: 10.1080/00036846.2013.815397
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    1. Suleyman Hilmi Kal & Ferhat Arslaner & Nuran Arslaner, 2015. "Sources of Asymmetry and Non-linearity in Pass-Through of Exchange Rate and Import Price to Consumer Price Inflation for the Turkish Economy during Inflation Targeting Regime," Working Papers 1530, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    2. Sana Ben Abdallah & Dhafer Saidane & Mihaly Petreczky, 2023. "Application of Robust Control for CSR Formalization and Stakeholders Interest," Computational Economics, Springer;Society for Computational Economics, vol. 62(3), pages 891-934, October.
    3. Sebastian Edwards & Luis Cabezas, 2021. "Exchange rate pass-through, monetary policy, and real exchange rates - Iceland and the 2008 crisis," Economics wp85, Department of Economics, Central bank of Iceland.
    4. Roberto Calero & Gabriel Rodríguez & Rodrigo Salcedo Cisneros, 2022. "Evolution of the Exchange Rate Pass-Throught into Prices in Peru: An Empirical Application Using TVP-VAR-SV Models," Documentos de Trabajo / Working Papers 2022-510, Departamento de Economía - Pontificia Universidad Católica del Perú.

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