Analyzing the Exchange Rate Pass-through in Mexico: Evidence Post Inflation Targeting Implementation

Sylvia Beatriz Guillermo Peón () and Martín Rodríguez Brindis ()

Revista ESPE - Ensayos sobre Política Económica, 2014, vol. 32, issue 74, No 74, 18-35

Abstract: This paper presents an analysis of the exchange rate pass-through mechanism for the Mexican economy after the formal adoption of inflation targeting policy. In particular, this research work analyzes how a change in the nominal exchange rate depreciation is transmitted to domestic prices along the distribution chain of pricing. The analysis is carried out using a recursive Structural Vector Autorregression with exogenous variables (recursive SVAR-X) model, which aims at the estimation of structural impulse-response-functions as a tool to analyze the degree and speed of the effect of exchange rate depreciation changes on domestic prices. Additionally, variance decompositions are computed to capture the relative importance of exchange rate depreciation shocks in explaining inflation fluctuations. Our results show that, for the period of analysis (after the formal adoption of inflation targeting in Mexico), the exchange rate pass-through to consumer prices is quite small and fast and exchange rate surprises are not relevant to explain consumer price inflation variation.

Keywords: Exchange rate pass-through in Mexico; Structural VAR-X models; Impulse-response functions (search for similar items in EconPapers)
JEL-codes: C32 E31 F31 F41 (search for similar items in EconPapers)
Date: 2014
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1016/S0120-4483(14)70025-9

Related works:
Journal Article: Analyzing the Exchange Rate Pass-through in Mexico: Evidence Post Inflation Targeting Implementation (2014)
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:bdr:ensayo:v:32:y:2014:i:74:p:18-35

Access Statistics for this article

Revista ESPE - Ensayos sobre Política Económica is currently edited by Ignacio Lozano-Espitia

More articles in Revista ESPE - Ensayos sobre Política Económica from Banco de la Republica de Colombia Cra 7 # 14-78 Piso 11. Contact information at EDIRC.
Bibliographic data for series maintained by Clorith Angélica Bahos Olivera ().