Asymmetries in exchange rate pass-through and monetary policy principle: Some Caribbean empirical evidence

Edward E. Ghartey

The North American Journal of Economics and Finance, 2019, vol. 47, issue C, 325-335

Abstract: The study shows that nonlinear models yield superior unbiased estimates which are free of serial correlation, heteroscedasticity and functional form instability problems which often affect linear models. All six countries have partial exchange rate pass-through, with only The Bahamas recording the lowest pass-through comparable with developed countries which target inflation. The rest of countries, and to a lesser extent Barbados, have high exchange rate pass-through which signifies their vulnerabilities to external inflation. Depreciation results in higher pass-through than appreciation, especially during rising prices/inflation. Nonlinear/threshold cointegration exists in all six countries. TAR results show asymmetric adjustment towards long-run equilibrium in The Bahamas, Guyana and to a lesser extent Jamaica, and symmetric adjustment in Barbados, Belize and Trinidad-Tobago. M-TAR results show asymmetric adjustment in four countries, while Guyana and Trinidad-Tobago experience symmetric adjustment. Taylor’s rule is effective in The Bahamas, insignificant in Trinidad-Tobago; and ineffective in the rest of the countries. Appreciation is the most effective operating target for central banks to reduce inflation in The Bahamas, Barbados, Guyana and Jamaica.

Keywords: Exchange rate pass-through; Exchange rates; Treasury Bills rates; Taylor’s principle; Nonlinear/asymmetric models (search for similar items in EconPapers)
JEL-codes: C32 C51 E31 E52 F31 O11 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1062940818300482
Full text for ScienceDirect subscribers only

Related works:
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:eee:ecofin:v:47:y:2019:i:c:p:325-335

DOI: 10.1016/j.najef.2018.05.001

Access Statistics for this article

The North American Journal of Economics and Finance is currently edited by Hamid Beladi

More articles in The North American Journal of Economics and Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().