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Asymmetric exchange rate pass-through: Evidence from Peru

Author

Listed:
  • Pérez, Fernando

    (Banco Central de Reserva del Perú)

  • Vega, Marco

    (Banco Central de Reserva del Perú)

Abstract

We study the response of prices to exchange rate shocks for the Peruvian economy in a non-linear context. For that purpose we specify a Structural Vector Autorregressive model (SVAR) and compute impulse-responses functions for prices after exchange rate shocks. We follow Hamilton (2010) and Kilian & Vigfusson (2011), who explore the presence of asymmetric effects on USA output after oil prices shocks that either decrease or increase oil prices. In our setup we analyze shocks that either appreciate or depreciate the local currency under censored exchange rate changes. The results exhibit a remarkable asymmetry in the response of consumer prices and wholesale import good prices, both on impact and on propagation. In absolute value, the effect of a depreciation shock on the consumer price index after one year is about twice the size of that corresponding to an appreciation shock. Roughly speaking, the one-year passthrough to prices is 20 percent under depreciations and only 10 percent after appreciations.

Suggested Citation

  • Pérez, Fernando & Vega, Marco, 2015. "Asymmetric exchange rate pass-through: Evidence from Peru," Working Papers 2015-011, Banco Central de Reserva del Perú.
  • Handle: RePEc:rbp:wpaper:2015-011
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    File URL: https://www.bcrp.gob.pe/docs/Publicaciones/Documentos-de-Trabajo/2015/documento-de-trabajo-11-2015.pdf
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    References listed on IDEAS

    as
    1. Maertens Odria, Luís Ricardo & Castillo, Paul & Rodriguez, Gabriel, 2012. "Does the exchange rate pass-through into prices change when inflation targeting is adopted? The Peruvian case study between 1994 and 2007," Journal of Macroeconomics, Elsevier, vol. 34(4), pages 1154-1166.
    2. Delatte, Anne-Laure & López-Villavicencio, Antonia, 2012. "Asymmetric exchange rate pass-through: Evidence from major countries," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 833-844.
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    Cited by:

    1. Cengiz TUNC & Mustafa Kilinc, 2018. "Exchange Rate Pass‐Through In A Small Open Economy: A Structural Var Approach," Bulletin of Economic Research, Wiley Blackwell, vol. 70(4), pages 410-422, October.
    2. Castellares, Renzo & Toma, Hiroshi, 2020. "Effects of a mandatory local currency pricing law on the exchange rate pass-through," Journal of International Money and Finance, Elsevier, vol. 106(C).
    3. Castillo, Paul & Vega, Hugo & Serrano, Enrique & Burga, Carlos, 2016. "De-dollarization of credit in Peru: the role of unconventional monetary policy tools," Working Papers 2016-002, Banco Central de Reserva del Perú.
    4. Renzo Rossini & Marco Vega & Zenón Quispe & Fernando Perez, 2016. "Inflation expectations and dollarisation in Peru," BIS Papers chapters, in: Bank for International Settlements (ed.),Inflation mechanisms, expectations and monetary policy, volume 89, pages 275-289, Bank for International Settlements.
    5. 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.
    6. Castellares, Renzo, 2017. "Condiciones de mercado y calidad como determinantes del traspaso del tipo de cambio," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 33, pages 29-41.

    More about this item

    Keywords

    Exchange rate pass-through; asymmetric impulse responses; non-linear models;

    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
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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