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.
|Date of creation:||Nov 2010|
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- Andrew Atkeson & Ariel Burstein, 2007.
"Pricing-to-market, trade costs, and international relative prices,"
Working Paper Series
2007-26, Federal Reserve Bank of San Francisco.
- Andrew Atkeson & Ariel Burstein, 2008. "Pricing-to-Market, Trade Costs, and International Relative Prices," American Economic Review, American Economic Association, vol. 98(5), pages 1998-2031, December.
- Andrew Atkeson & Ariel Burstein, 2008. "Pricing-to-market, trade costs, and international relative prices," Staff Report 404, Federal Reserve Bank of Minneapolis.
- Eitrheim, Øyvind & Teräsvirta, Timo, 1995.
"Testing the Adequacy of Smooth Transition Autoregressive Models,"
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56, Stockholm School of Economics.
- Eitrheim, Oyvind & Terasvirta, Timo, 1996. "Testing the adequacy of smooth transition autoregressive models," Journal of Econometrics, Elsevier, vol. 74(1), pages 59-75, September.
- Christopher Gust & Sylvain Leduc & Robert Vigfusson, 2006.
"Trade Integration, Competiton, and the Decline in Exchange-rate Pass-through,"
2006 Meeting Papers
165, Society for Economic Dynamics.
- Gust, Christopher & Leduc, Sylvain & Vigfusson, Robert, 2010. "Trade integration, competition, and the decline in exchange-rate pass-through," Journal of Monetary Economics, Elsevier, vol. 57(3), pages 309-324, April.
- Christopher J. 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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