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

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  • Ozkan, Ibrahim
  • Erden, Lutfi

Abstract

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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  • Ozkan, Ibrahim & Erden, Lutfi, 2015. "Time-varying nature and macroeconomic determinants of exchange rate pass-through," International Review of Economics & Finance, Elsevier, vol. 38(C), pages 56-66.
  • Handle: RePEc:eee:reveco:v:38:y:2015:i:c:p:56-66
    DOI: 10.1016/j.iref.2015.01.007
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    Cited by:

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    2. Chou, K.W., 2019. "Re-examining the time-varying nature and determinants of exchange rate pass-through into import prices," The North American Journal of Economics and Finance, Elsevier, vol. 49(C), pages 331-351.
    3. Alain Kabundi & Asi Mbelu, 2018. "Has the Exchange Rate Pass‐Through changed in South Africa?," South African Journal of Economics, Economic Society of South Africa, vol. 86(3), pages 339-360, September.
    4. Hernán Rincón-Castro & Norberto Rodríguez-Niño, 2018. "Nonlinear state and shock dependence of exchange rate pass through on prices," BIS Working Papers 690, Bank for International Settlements.
    5. Jiménez-Rodríguez, Rebeca & Morales-Zumaquero, Amalia, 2016. "A new look at exchange rate pass-through in the G-7 countries," Journal of Policy Modeling, Elsevier, vol. 38(5), pages 985-1000.
    6. Adusei, Michael & Gyapong, Eddie Yaw, 2017. "The impact of macroeconomic variables on exchange rate volatility in Ghana: The Partial Least Squares Structural Equation Modelling approach," Research in International Business and Finance, Elsevier, vol. 42(C), pages 1428-1444.
    7. Kassi, Diby François & Sun, Gang & Ding, Ning & Rathnayake, Dilesha Nawadali & Assamoi, Guy Roland, 2019. "Asymmetry in exchange rate pass-through to consumer prices: Evidence from emerging and developing Asian countries," Economic Analysis and Policy, Elsevier, vol. 62(C), pages 357-372.
    8. Tunç, Cengiz, 2017. "A Survey on Exchange Rate Pass through in Emerging Markets," Bulletin of Economic Theory and Analysis, BETA Journals, vol. 2(3), pages 205-233, July-Sept.
    9. Nguyen Van Phuc & Vo Hong Duc, 2021. "Macroeconomics Determinants of Exchange Rate Pass-Through: New Evidence from the Asia-Pacific Region," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 57(1), pages 5-20, January.
    10. Szafranek, Karol, 2021. "Evidence on time-varying inflation synchronization," Economic Modelling, Elsevier, vol. 94(C), pages 1-13.
    11. Baharumshah, Ahmad Zubaidi & Soon, Siew-Voon & Wohar, Mark E., 2017. "Markov-switching analysis of exchange rate pass-through: Perspective from Asian countries," International Review of Economics & Finance, Elsevier, vol. 51(C), pages 245-257.

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    More about this item

    Keywords

    Exchange rate pass-through; DCC-GARCH model; Panel threshold regression;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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