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Structural Change in Covariance and Exchange Rate Pass-Through: The Case of Canada

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  • Lynda Khalaf
  • Maral Kichian
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    Abstract

    The authors address empirically the implications of structural breaks in the variance-covariance matrix of inflation and import prices for changes in pass-through. They define pass-through within a correlated vector autoregression (VAR) framework as the response of domestic inflation to an impulse in import price inflation. This approach allows them to examine changes in both the amount and the duration of pass-through.

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    File URL: http://www.bankofcanada.ca/wp-content/uploads/2010/02/wp06-2.pdf
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    Bibliographic Info

    Paper provided by Bank of Canada in its series Working Papers with number 06-2.

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    Length: 26 pages
    Date of creation: 2006
    Date of revision:
    Handle: RePEc:bca:bocawp:06-2

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    Web page: http://www.bank-banque-canada.ca/

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    Keywords: Econometric and statistical methods;

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    References

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    1. Devereux, Michael B. & Engel, Charles & Storgaard, Peter E., 2004. "Endogenous exchange rate pass-through when nominal prices are set in advance," Journal of International Economics, Elsevier, vol. 63(2), pages 263-291, July.
    2. Jeannine Bailliu & Eiji Fujii, 2004. "Exchange Rate Pass-Through and the Inflation Environment in Industrialized Countries: An Empirical Investigation," Working Papers 04-21, Bank of Canada.
    3. Jean-Thomas Bernard & Jean-Marie Dufour & Ian Genest & Lynda Khalaf, 2001. "Simulation-Based Finite-Sample Tests for Heteroskedasticity and ARCH Effects," CIRANO Working Papers 2001s-25, CIRANO.
    4. Dufour, Jean-Marie & Kiviet, Jan F., 1996. "Exact tests for structural change in first-order dynamic models," Journal of Econometrics, Elsevier, vol. 70(1), pages 39-68, January.
    5. Hafedh Bouakez & Nooman Rebei, 2005. "Has Exchange Rate Pass-Through Really Declined in Canada?," Working Papers 05-29, Bank of Canada.
    6. Jeannine Bailliu & Hafedh Bouakez, 2004. "Exchange Rate Pass-Through in Industrialized Countries," Bank of Canada Review, Bank of Canada, vol. 2004(Spring), pages 19-28.
    7. Andrews, Donald W K, 1993. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Econometrica, Econometric Society, vol. 61(4), pages 821-56, July.
    8. Tommaso Monacelli, 1999. "Into the Mussa Puzzle: Monetary Policy Regimes and the Real Exchange Rate in a Small Open Economy," Boston College Working Papers in Economics 437, Boston College Department of Economics, revised 15 Sep 2000.
    9. Maral Kichian, 2001. "On the Nature and the Stability of the Canadian Phillips Curve," Working Papers 01-4, Bank of Canada.
    10. Joseph E. Gagnon & Jane Ihrig, 2001. "Monetary policy and exchange rate pass-through," International Finance Discussion Papers 704, Board of Governors of the Federal Reserve System (U.S.).
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