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Regime-dependent exchange-rate pass-through to import prices

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  • Kiliç, Rehim

Abstract

This paper investigates departures from linearity in the exchange rate pass-through (ERPT) to import prices of six major economies by using a logistic smooth transition pass-through (LSTP) regression. The analysis of LSTP regressions provides the following new insights into the dynamic features of ERPT: (i) There is strong evidence for the presence of smooth transition type threshold effects in the ERPT. The identified threshold dynamics reveals the existence of two extreme regimes, one with “low” and another with “high” pass-through. (ii) Both the short-run and the long-run pass-through estimates exhibit variation across these extreme regimes and in the long-run, pass-through tends to be complete in the “high” pass-through regime and low, but, incomplete in the “low” pass-through regime. (iii) Import price elasticities are asymmetric, as such, the same 1% depreciation of the currency is not associated with the same degree of ERPT across regimes. (iv) Temporal behavior of ERPT for a given country is generally similar across local currency appreciation and inflation rate-driven episodes. On the other hand, there is considerable variation across countries in the speed of the transitions and the estimated thresholds under each transition variable. These findings may explain why the linear ERPT literature might have obtained mixed results on the degree of ERPT across countries and sample periods used.

Suggested Citation

  • Kiliç, Rehim, 2016. "Regime-dependent exchange-rate pass-through to import prices," International Review of Economics & Finance, Elsevier, vol. 41(C), pages 295-308.
  • Handle: RePEc:eee:reveco:v:41:y:2016:i:c:p:295-308
    DOI: 10.1016/j.iref.2015.08.003
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    Cited by:

    1. repec:eee:chieco:v:46:y:2017:i:c:p:87-96 is not listed on IDEAS
    2. Ali, Syed Zahid & Anwar, Sajid, 2017. "Exchange rate pass through, cost channel to monetary policy transmission, adaptive learning, and the price puzzle," International Review of Economics & Finance, Elsevier, vol. 48(C), pages 69-82.
    3. repec:bla:afrdev:v:29:y:2017:i:3:p:446-457 is not listed on IDEAS
    4. repec:eee:reveco:v:51:y:2017:i:c:p:245-257 is not listed on IDEAS

    More about this item

    Keywords

    Exchange rate pass-through; Import prices; Smooth transition pass-through; Nonlinearity; Asymmetry;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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