Exchange-Rate Pass-through with Intertemporal Linkages: Evidence at the Commodity Level
This paper argues that the stability of exchange-rate pass-through is not well tested in common econometric specifications of pass-through equations. This is because (1) expected future exchange-rate changes are an important omitted variable in these estimations, and (2) the use of aggregate data complicates inference. Commodity-level estimates obtained from applying the Kalman filter are consistent with the apparent instability in aggregate pass-through. Moreover, by comparing these estimates to actual exchange-rate movements, the observed instability is found to be consistent with forward-looking behavior as posited. Copyright 1995 by Blackwell Publishing Ltd.
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Volume (Year): 3 (1995)
Issue (Month): 3 (October)
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