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Exchange Rate Pass-Through to Prices: VAR Evidence for Chile

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  • Santiago Justel
  • Andrés Sansone

Abstract

This paper investigates the exchange rate pass-through (ERPT) to different price indices in Chile. The analysis is carried out with a vector autoregressive (VAR) model with block exogeneity restrictions. Models were estimated using monthly data for Chile from January 1987 to December 2013. Average pass-through ratio to total CPI is estimated to be between 0.1 and 0.2 in the medium term. These results indicate a lower ERPT after the adoption of inflation targeting. Moreover, from 2002 onwards the effect of an exchange rate movement takes around four quarters to pass-through completely, compared to one to two years for the full sample.

Suggested Citation

  • Santiago Justel & Andrés Sansone, 2015. "Exchange Rate Pass-Through to Prices: VAR Evidence for Chile," Working Papers Central Bank of Chile 747, Central Bank of Chile.
  • Handle: RePEc:chb:bcchwp:747
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    References listed on IDEAS

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    1. Felipe Morandé & Matías Tapia, 2002. "Exchange Rate Policy in Chile: From the Band to Floating and Beyond," Working Papers wp192, University of Chile, Department of Economics.
    2. Campa, Jose M. & Goldberg, Linda S., 2002. "Exchange rate pass-through into import prices: A macro or micro phenomenon?," IESE Research Papers D/475, IESE Business School.
    3. Taylor, John B., 2000. "Low inflation, pass-through, and the pricing power of firms," European Economic Review, Elsevier, vol. 44(7), pages 1389-1408, June.
    4. Michael B. Devereux & James Yetman, 2002. "Price Setting and Exhange Rate Pass-Through," Working Papers 222002, Hong Kong Institute for Monetary Research.
    5. Hahn, Elke, 2003. "Pass-through of external shocks to euro area inflation," Working Paper Series 243, European Central Bank.
    6. Obstfeld, Maurice & Taylor, Alan M., 1997. "Nonlinear Aspects of Goods-Market Arbitrage and Adjustment: Heckscher's Commodity Points Revisited," Journal of the Japanese and International Economies, Elsevier, vol. 11(4), pages 441-479, December.
    7. Carlos José García & Jorge Enrique Restrepo, 2001. "Price Inflation and Exchange Rate Pass-Through in Chile," Working Papers Central Bank of Chile 128, Central Bank of Chile.
    8. 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.
    9. Carlos Noton Norambuena, 2003. "The pass-through from depreciation to inflation: Chile 1986-2001," Estudios de Economia, University of Chile, Department of Economics, vol. 30(1 Year 20), pages 133-155, June.
    10. Miguel Fuentes, 2007. "Pass-Through to Import Prices: Evidence from Developing Countries," Documentos de Trabajo 320, Instituto de Economia. Pontificia Universidad Católica de Chile..
    11. Roberto Álvarez & Patricio Jaramillo & Jorge Selaive, 2008. "Exchange Rate Pass-Through into Import Prices: The Case of Chile," Working Papers Central Bank of Chile 465, Central Bank of Chile.
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    Cited by:

    1. Eijffinger, Sylvester C W & Malagon, Jonathan, 2018. "Financial spillovers of international monetary policy: Six hypotheses on the Latin American case, 2010-2016," CEPR Discussion Papers 12678, C.E.P.R. Discussion Papers.
    2. Esther Perez Ruiz, 2016. "Outside the Band; Depreciation and Inflation Dynamics in Chile," IMF Working Papers 16/129, International Monetary Fund.
    3. Yavuz Arslan & Martina Jašová & Elod Takáts, 2016. "The inflation process," BIS Papers chapters, in: Bank for International Settlements (ed.), Inflation mechanisms, expectations and monetary policy, volume 89, pages 23-40, Bank for International Settlements.
    4. Alberto Naudon & Joaquín Vial, 2016. "The evolution of inflation in Chile since 2000," BIS Papers chapters, in: Bank for International Settlements (ed.), Inflation mechanisms, expectations and monetary policy, volume 89, pages 93-116, Bank for International Settlements.
    5. Michael Pedersen, 2016. "Propagation of inflationary shocks in Chile," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 19(3), pages 004-025, December.
    6. 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.
    7. Gabriela Contreras & Francisco Pinto, 2016. "Traspaso de tipo de cambio nominal a inflación desagregada en Chile," Notas de Investigación Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 19(2), pages 154-170, August.
    8. Mariana García-Schmidt & Javier Garcia-Cicco, 2018. "Revisiting the Exchange Rate Pass Through: A General Equilibrium Perspective," Working Papers Central Bank of Chile 826, Central Bank of Chile.

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