Exchange-rate pass-through to import prices: nonlinearities and exchange rate and inflationary regimes

Rehim Kýlýc (rekilic@ku.edu.tr)
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Rehim Kýlýc: Koc University

Koç University-TUSIAD Economic Research Forum Working Papers from Koc University-TUSIAD Economic Research Forum

Abstract: 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.

Keywords: Conditional; CAPM (search for similar items in EconPapers)
Pages: 40 pages
Date: 2010-11
New Economics Papers: this item is included in nep-mon and nep-opm
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