Exchange Rate Pass-Through:Evidence Based on Vector Autoregression with Sign Restrictions

Lian An ()

MPRA Paper from University Library of Munich, Germany

Abstract: Abstract: This paper provides cross-country and time-series evidence on the extent of exchange rate pass-through at different stages of distribution - import prices, producer prices and consumer prices - for eight major industrial countries: United States, Japan, Canada, Italy, UK, Finland, Sweden and Spain. The analysis is based on a vector autoregreesion (VAR) model that includes the distribution chain of pricing. Instead of the conventional choleski decomposition as used in the literature, I propose to identify the exchange rate shock by the more recent sign restriction approach. For the first time in the literature, estimates of pass-through based on the sign restriction procedure are provided. I find exchange rate pass-through incomplete in many horizons, though complete pass-through is observed occasionally. The degree of pass-through declines and time needed for complete pass-through lengthens along the distribution chain. Furthermore, I find that a greater pass-through coefficient is associated with an economy that is smaller in size with higher import shares, more persistent and less volatile exchange rates, more volatile monetary shocks, higher inflation rate, and less volatile GDP.

Keywords: Keywords: pass-through; vector autoregression; sign restrictions; exchange rates (search for similar items in EconPapers)
JEL-codes: F31 F41 (search for similar items in EconPapers)
Date: 2006-10-24
New Economics Papers: this item is included in nep-cba, nep-ifn, nep-mon and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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Related works:
Journal Article: Exchange Rate Pass-Through: Evidence Based on Vector Autoregression with Sign Restrictions (2012)
Working Paper: Exchange rate pass-through: evidence based on vector autoregression with sign restrictions (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:527

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