Exchange-rate pass-through to import prices: nonlinearities and exchange rate and inflationary regimes
This paper investigates the relationship between exchange rate pass-through and exchange rate appreciations/depreciations and inflation by estimating nonlinear time series models. Motivated by theoretical and empirical results in the literature, the paper proposes new econometric models that can characterize nonlinear and asymmetric dynamics between import prices and exchange rate changes in a parsimonious fashion. Findings show the presence of complete and incomplete pass-through regimes depending upon the magnitude of appreciations of a currency and inflation rates both in the short-run and in the long-run. Results also reveal threshold effects and asymmetry in the pass-through relationship over appreciations/depreciations as well as inflationary and disinflationary periods. Findings have important macroeconomic policy implications.
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- Christopher Gust & Sylvain Leduc & Robert Vigfusson, 2006.
"Trade Integration, Competiton, and the Decline in Exchange-rate Pass-through,"
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- Christopher Gust & Sylvain Leduc & Robert J. Vigfusson, 2006. "Trade integration, competition, and the decline in exchange-rate pass-through," International Finance Discussion Papers 864, Board of Governors of the Federal Reserve System (U.S.).
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"Testing the adequacy of smooth transition autoregressive models,"
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