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A causality test of inflation environment and lower exchange rate pass-through

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  • Reginaldo Pinto Nogueira, Jr.

    (IBMEC Minas Gerais)

Abstract

Recent literature has argued that exchange rate pass-through (ERPT) into inflation has been declining following a dramatic change in inflation environment during the 1990s. We formally check this hypothesis for a sample of 12 emerging and developed economies, by making use of a state-space model that allows ERPT to be time-varying and dependent on the inflation environment, and testing whether inflation contains significant information about the future evolution of ERPT. The results reinforce the view of a smooth decline in the impact of exchange rates on inflation, but do not support the hypothesis that lower inflation precedes this declining ERPT.

Suggested Citation

  • Reginaldo Pinto Nogueira, Jr., 2014. "A causality test of inflation environment and lower exchange rate pass-through," Economics Bulletin, AccessEcon, vol. 34(3), pages 1679-1686.
    • Handle: RePEc:ebl:ecbull:eb-14-00484
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Exchange Rate Pass-Through; State-space Models; Causality Tests.;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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