Assessing estimates of the exchange rate pass-through
AbstractThis paper uses Monte Carlo techniques to address the question: are structural VAR estimates of exchange rate pass-through a useful tool to evaluate macroeconomic models of open economies? The data generating process is a small open economy DSGE model with incomplete pass-through. The results suggest that (i) the pass-through estimates obtained from a first-differenced VAR exhibit a systematic downward bias; (ii) by contrast, estimates derived from a low order vector equilibrium correction model are fairly accurate; but (iii) standard cointegration tests have low power to detect the cointegration relations implied by the DSGE model.
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Bibliographic InfoPaper provided by Norges Bank in its series Working Paper with number 2007/12.
Length: 60 pages
Date of creation: 11 Jan 2008
Date of revision:
Exchange rate pass-through; structural VAR; DSGE models; cointegration;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-03-01 (All new papers)
- NEP-CBA-2008-03-01 (Central Banking)
- NEP-DGE-2008-03-01 (Dynamic General Equilibrium)
- NEP-IFN-2008-03-01 (International Finance)
- NEP-OPM-2008-03-01 (Open Economy Macroeconomic)
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