Role of Exchange Rate Volatility in Exchange Rate Pass-Through to Import Prices: Some Evidence from Japan
AbstractThis paper investigates the effect of exchange rate volatility on the degree of exchange rate pass-through in Japan for the period January 1975 to June 1997. Although several studies put forward theoretical arguments for the volatility-domestic import price relationship, only a very few studies produced empirical evidence. The volatility of contractual currency based exchange rate index returns was modelled using GARCH-type processes with skewed student t-distribution, capturing the typical nature of exchange rate returns. Using a three-state regime switching threshold model, we examine the response of import prices, the degree of pass-through in particular, to different volatility regimes, low, medium and high. The results show that the exchange rate pass- through coefficient is significantly different across all three volatility regimes only during recession.
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Bibliographic InfoPaper provided by EconWPA in its series International Finance with number 0406006.
Length: 29 pages
Date of creation: 21 Jun 2004
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Find related papers by JEL classification:
- F31 - International Economics - - International Finance - - - Foreign Exchange
- 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-2004-06-22 (All new papers)
- NEP-FIN-2004-06-29 (Finance)
- NEP-IFN-2004-06-22 (International Finance)
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