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Exchange Rate Pass-Through to Inflation in the Philippines: Evidence of Asymmetry and Non-linearity​

Author

Listed:
  • Jasmin E. Dacio

    (Bangko Sentral ng Pilipinas)

  • Reizle Jade C. Platitas

    (Bangko Sentral ng Pilipinas)

  • Sarah Jane A. Castañares

    (Bangko Sentral ng Pilipinas)

  • Sanjeev A. Parmanand

    (Bangko Sentral ng Pilipinas)

Abstract

This paper investigates whether the exchange rate pass-through (ERPT) to inflation varies with the direction and magnitude of change in the nominal exchange rate. Using non-linear and multiple threshold autoregressive distributive lag models, we reconsidered the premise of linearity and symmetry often assumed in the literature on ERPT. We found that in the case of the Philippines, the long-run ERPT is larger and statistically significant during depreciation episodes. Meanwhile, pass-through is limited during appreciation episodes, possibly reflecting the downward stickiness of prices. Further, ERPT tends to be higher at large enough depreciations while it remains limited even during large appreciations. After accounting for asymmetry, the results are consistent with previous studies establishing the decline of ERPT since the Bangko Sentral ng Pilipinas adopted an inflation-targeting framework in 2002.

Suggested Citation

  • Jasmin E. Dacio & Reizle Jade C. Platitas & Sarah Jane A. Castañares & Sanjeev A. Parmanand, 2025. "Exchange Rate Pass-Through to Inflation in the Philippines: Evidence of Asymmetry and Non-linearity​," BSP Discussion Paper Series 202516, Bangko Sentral ng Pilipinas.
    • Handle: RePEc:bhd:dpaper:202516
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    More about this item

    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
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications

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