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Nonlinear exchange rate pass-through in Latin America

Lucas Lourenço () and Claudio Vasconcelos ()
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Lucas Lourenço: Universidade Federal de Juiz de Fora, Brazil
Claudio Vasconcelos: Universidade Federal de Juiz de Fora, Brazil

Economics Bulletin, 2018, vol. 38, issue 3, 1566-1582

Abstract: The study aimed to investigate the exchange rate pass-through (ERPT) to domestic prices in four major Latin American economies between 1999 and 2017. The underlying assumption is that currency appreciations have different degree of pass-through when compared to depreciations. The methodology is based on NARDL model, which allows cointegration analyses after the inclusion of threshold variables. The results showed satisfactory presence of cointegration and consistency towards what the literature predicts. In the short run, the results were in accordance with the literature, with small coefficients, many of them non-significant. In the long run, significant coefficients varying from 9% up to 45% were estimated. For Brazil and Mexico, the currency has a sharper transmission to domestic inflation when it depreciates. In the Chilean case, the opposite outcome prevailed, as appreciations had a larger impact than depreciations. In Colombia, the ERPT coefficients were significant, although linear.

Keywords: Exchange rate; pass-through; nonlinearity; NARDL; Latin America (search for similar items in EconPapers)
JEL-codes: F3 F4 (search for similar items in EconPapers)
Date: 2018-09-07
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