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

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  • 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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Bibliographic 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;

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  1. J. McCarthy, 1999. "Pass-through of exchange rates and import prices to domestic inflation in some industrialised economies," BIS Working Papers 79, Bank for International Settlements.
  2. Yasuhiro Omori & Siddhartha Chib & Neil Shephard & Jouchi Nakajima, 2004. "Stochastic volatility with leverage: fast likelihood inference," Economics Papers 2004-W19, Economics Group, Nuffield College, University of Oxford.
  3. Amstad, Marlene & Fischer, Andreas M, 2005. "Time-Varying Pass-Through from Import Prices to Consumer Prices: Evidence from an Event Study with Real-Time Data," CEPR Discussion Papers 5395, C.E.P.R. Discussion Papers.
  4. Haroon Mumtaz & Özlem Oomen & Jian Wang, 2006. "Exchange rate pass-through into UK import prices," Bank of England working papers 312, Bank of England.
  5. Valerie Herzberg & George Kapetanios & Simon Price, 2003. "Import prices and exchange rate pass-through: theory and evidence from the United Kingdom," Bank of England working papers 182, Bank of England.
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