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Time-varying nature and macroeconomic determinants of exchange rate pass-through

Listed author(s):
  • Ozkan, Ibrahim
  • Erden, Lutfi
Registered author(s):

    The objectives of this study are two-fold: i) to derive time-varying exchange rate pass-through (ERPT) degree and ii) investigate the macroeconomic determinants of the degree of ERPT. For this purpose, the study adopts a distinct methodology combining Dynamic Conditional Correlation-Generalized Autoregressive Conditional Heteroskedasticity (DCC-GARCH) and panel threshold regression analyses. The data from a large sample of countries are used and time-varying ERPT measure is obtained with an application of DCC-GARCH to each country in the sample. Then the macroeconomic determinants of ERPT are examined by making use of both cross country and time variations in a panel regression model. The time varying structure of ERPT clearly shows that the ERPT degree has been low over the last three decades and declining dramatically since mid-1990s. Further, ERPT responds positively to average inflation and inflation rate volatility while negatively to exchange rate volatility, the degree of openness and output gap.

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    File URL: http://www.sciencedirect.com/science/article/pii/S1059056015000131
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    Article provided by Elsevier in its journal International Review of Economics & Finance.

    Volume (Year): 38 (2015)
    Issue (Month): C ()
    Pages: 56-66

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    Handle: RePEc:eee:reveco:v:38:y:2015:i:c:p:56-66
    DOI: 10.1016/j.iref.2015.01.007
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620165

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