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Time-varying exchange rate pass-through: experiences of some industrial countries

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Author Info
Toshitaka Sekine
Abstract

This paper estimates exchange rate pass-through of six major industrial countries using a time-varying parameter with stochastic volatility model. Exchange rate pass-through is divided into impacts of exchange rate fluctuations to import prices (first-stage pass-through) and those of import price movements to consumer prices (second-stage pass-through). The paper finds that both stages of pass-through have declined over time for all the sample countries. The decline in second-stage pass-through is associated with the emergence of the low and stable inflation environment as well as a rise in import penetration, while the relationship to the inflation environment is weak for first-stage pass-through.

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Publisher Info
Paper provided by Bank for International Settlements in its series BIS Working Papers with number 202.

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Length: 34 pages
Date of creation: Mar 2006
Date of revision:
Handle: RePEc:bis:biswps:202

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Related research
Keywords: exchange rate pass-through; impacts of commodity prices; time-varying parameter; Markov Chain Monte Carlo; stochastic volatility;

Find related papers by JEL classification:
C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Bayesian Analysis
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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