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Estimating the Exchange Rate Pass-Through for the Components of the Consumer Price Index

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  • Angelo Orane-Hutchinson

    (Department of Economic Research, Central Bank of Costa Rica)

Abstract

During the first quarter of 2014, the Costa Rican colon experienced the strongest depreciation of the last 5 years. One of the main consequences was an increase in the inter-annual inflation rate, beginning on March 2014. Considerable differences in the inflation rate were observed in the components and groups of the Consumer Price Index. The main purpose of this paper is to quantify the exchange rate passthrough elasticity towards the inflation rate of each group. In order to achieve this purpose, I estimated vector autoregressive systems (VAR) for each group and used the accumulated responses of prices to an exchange rate impulse. For the 2000-2014 period, I measure a pass-through elasticity of 0,219 for the CPI. Transportation and Entertainment and Culture are the two sector most affected by exchange rate variations. ***Resumen: Durante los primeros meses del año 2014 el colón costarricense experimento la depreciación más fuerte de los últimos 5 años. Como consecuencia, la inflación interanual se aceleró a partir de marzo de ese año. En este contexto, se observaron diferencias importantes en los cambios en la inflación de los diferentes componentes y grupos del Índice de Precios al Consumidor (IPC). El propósito de esta investigación es cuantificar la elasticidad del traspaso del tipo de cambio hacia cada grupo. Para ello se estimaron sistemas de vectores autorregresivos (VAR) para cada grupo y los coeficientes de traspaso se obtuvieron a partir de las respuestas acumuladas de los precios ante impulsos en el tipo de cambio. Para el periodo 2000-2014 se obtuvo una elasticidad de traspaso hacia el IPC general de 0,219 puntos porcentuales transcurridos 12 meses. Se encontró que los sectores más afectados por variaciones cambiarias son Transportes y Entretenimiento y Cultura.

Suggested Citation

  • Angelo Orane-Hutchinson, 2016. "Estimating the Exchange Rate Pass-Through for the Components of the Consumer Price Index," Documentos de Trabajo 1506, Banco Central de Costa Rica.
    • Handle: RePEc:apk:doctra:1506
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    References listed on IDEAS

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    1. Leon, Jorge & Segura, Carlos & Vasquez, Jose Pablo, 2011. "Inflación Internacional Relevante para Costa Rica [Relevant International Inflation for Costa Rica]," MPRA Paper 44497, University Library of Munich, Germany, revised 2011.
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    4. Leon, Jorge & Morera, Ana Patricia & Ramos, Welmer, 2001. "El Pass Through del Tipo de Cambio: Un Análisis para la Economía Costarricense de 1991 al 2001 [Exchange Rate Pass Throught: an Analysis for the Costarican Economy from 1991 to 2001]," MPRA Paper 44508, University Library of Munich, Germany, revised 2001.
    5. Choudhri, Ehsan U. & Hakura, Dalia S., 2015. "The exchange rate pass-through to import and export prices: The role of nominal rigidities and currency choice," Journal of International Money and Finance, Elsevier, vol. 51(C), pages 1-25.
    6. Choudhri, Ehsan U. & Faruqee, Hamid & Hakura, Dalia S., 2005. "Explaining the exchange rate pass-through in different prices," Journal of International Economics, Elsevier, vol. 65(2), pages 349-374, March.
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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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