Exchange rate pass-through and inflation: a nonlinear time series analysis

Mototsugu Shintani, Akiko Hagiwara () and Tomoyoshi Yabu

No 12-00008, Vanderbilt University Department of Economics Working Papers from Vanderbilt University Department of Economics

Abstract: This paper investigates the relationship between the exchange rate pass-through (ERPT) and inflation by estimating a nonlinear time series model. Based on a simple theoretical model of ERPT determination, we show that the dynamics of ERPT can be well approximated by a class of smooth transition autoregressive (STAR) models using the past inflation rate as a transition variable. We employ several U-shaped transition functions in the estimation of the time-varying ERPT to US domestic prices. The estimation result suggests that declines in the ERPT during the 1980s and 1990s are associated with lowered inflation.

Keywords: import prices; inflation indexation; pricing-to-market; smooth transition autoregressive models; sticky prices. (search for similar items in EconPapers)
JEL-codes: N0 (search for similar items in EconPapers)
Date: 2012-05-09
New Economics Papers: this item is included in nep-cba, nep-mon, nep-opm and nep-sea
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Exchange rate pass-through and inflation: A nonlinear time series analysis (2013)
Working Paper: Exchange Rate Pass-Through and Inflation: A Nonlinear Time Series Analysis (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:van:wpaper:vuecon-12-00008

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