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Asymmetries of the Exchange Rate Pass Through to Domestic Prices: The Case of Costa Rica

Author

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  • Esquivel Monge, Manfred
  • Gomez Rodriguez, Jose Fabio

Abstract

By using a logistic smooth transition vector autoregressive model this paper examines whether the exchange rate had asymmetric effects on inflation in Costa Rica during the period 1991-2009. Three basic questions are tried to be answered: Is there any variable that significantly induces asymmetries on the exchange rate pass through? Do positive and negative shocks on exchange rate have symmetric effects on the price level? Is there any evidence that the size of the shocks determines the relative size of the impact on inflation of a given shock on the exchange rate? Among many variables, it is found that lagged change in oil prices is the most appropriate transition variable, which means that it induces the greatest asymmetric effects on the pass-through. On average, when this transition variable is above certain threshold level, the pass-through is two times higher. There is no strong evidence of sign or magnitude asymmetries, which means that the pass-through is expected to be essentially the same when there is a positive or a negative shock on the exchange rate and when such shocks are big or small.

Suggested Citation

  • Esquivel Monge, Manfred & Gomez Rodriguez, Jose Fabio, 2010. "Asymmetries of the Exchange Rate Pass Through to Domestic Prices: The Case of Costa Rica," MPRA Paper 60251, University Library of Munich, Germany, revised Jul 2010.
    • Handle: RePEc:pra:mprapa:60251
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    References listed on IDEAS

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    1. Choudhri, Ehsan U. & Hakura, Dalia S., 2006. "Exchange rate pass-through to domestic prices: Does the inflationary environment matter?," Journal of International Money and Finance, Elsevier, vol. 25(4), pages 614-639, June.
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    4. Correa, Arnildo da Silva & Minella, André, 2010. "Nonlinear mechanisms of the exchange rate pass-through: A Phillips curve model with threshold for Brazil," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 64(3), September.
    5. Winkelried, Diego, 2003. "¿Es asimétrico el pass-through en el Perú?: Un análisis agregado," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 10.
    6. Mendoza Lugo, Omar & Pedauga, Luis Enrique, 2006. "Efecto transferencia (pass-through) del tipo de cambio en los precios de bienes y servicios en Venezuela [Exchange rate pass-through on prices of goods and services in Venezuela]," MPRA Paper 14874, University Library of Munich, Germany.
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    Cited by:

    1. Fabio Gómez-Rodríguez & Catalina Sandoval-Alvarado, 2025. "The pass-through effect of the nominal exchange rate to prices in Costa Rica," Documentos de Trabajo 2503, Banco Central de Costa Rica.

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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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