Exchange Rate Pass-Through Conditional on Shocks and Monetary Policy Credibility. The Case of Uruguay

Fernanda Cuitiño (), Juan Medina and Laura Zacheo ()
Additional contact information
Fernanda Cuitiño: Banco Central del Uruguay
Laura Zacheo: Banco Central del Uruguay

No 2021008, Documentos de trabajo from Banco Central del Uruguay

Abstract: The estimation of exchange rate pass-through (ERPT) is critical for understanding and forecasting the inflation dynamics in open economies. In this work, we estimate a medium scale New-Keynesian model for the Uruguayan economy to analyze the ERPT. We compute the ERPT with the estimated model conditional on specific external shocks and on whether the monetary policy has perfect or imperfect credibility. The results show that the empirical fit is better under imperfect credibility. The estimated degree of imperfect credibility is quite significant and it shows substantial variation across shocks and over time. We find that the ERPT tends to be lower for a shock that has a higher offsetting effect in aggregate demand and when monetary policy is more credible in keeping the inflation target constant. Finally, adding the exchange rate stabilization in the monetary policy rule in the case of Uruguay has a stronger empirical role once we allow for imperfect credibility.

Keywords: exchange rate pass-through; emerging economy; imperfect credibility; bayesian estimation (search for similar items in EconPapers)
JEL-codes: E12 E58 F31 F41 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2021
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-mac, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.bcu.gub.uy/Estadisticas-e-Indicadores/ ... 20Trabajo/8.2021.pdf First version, 2021 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bku:doctra:2021008

Access Statistics for this paper

More papers in Documentos de trabajo from Banco Central del Uruguay Biblioteca Especializada. Banco Central del Uruguay. Diagonal Fabini 777, Montevideo-Uruguay. CP 11100. Contact information at EDIRC.
Bibliographic data for series maintained by Biblioteca Especializada ().