A causality test of inflation environment and lower exchange rate pass-through

Reginaldo Nogueira

Economics Bulletin, 2014, vol. 34, issue 3, 1679-1686

Abstract: Recent literature has argued that exchange rate pass-through (ERPT) into inflation has been declining following a dramatic change in inflation environment during the 1990s. We formally check this hypothesis for a sample of 12 emerging and developed economies, by making use of a state-space model that allows ERPT to be time-varying and dependent on the inflation environment, and testing whether inflation contains significant information about the future evolution of ERPT. The results reinforce the view of a smooth decline in the impact of exchange rates on inflation, but do not support the hypothesis that lower inflation precedes this declining ERPT.

Keywords: Exchange Rate Pass-Through; State-space Models; Causality Tests. (search for similar items in EconPapers)
JEL-codes: F3 F4 (search for similar items in EconPapers)
Date: 2014-08-06
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