Shock-dependent exchange rate pass-through: Evidence based on a narrative sign approach for Japan

Lian An, Mark Wynne and Ren Zhang

Journal of International Money and Finance, 2021, vol. 118, issue C

Abstract: This paper studies shock-dependent exchange rate pass-through for Japan with a Bayesian structural vector autoregression model. We identify the structural shocks by complementing the traditional sign and zero restrictions with narrative sign restrictions related to the Plaza Accord. We find that the narrative sign restrictions are highly informative. They substantially sharpen and even change the inferences of the exchange rate shock originally identified with only the traditional sign and zero restrictions through distinguishing the exchange rate shock from the demand shock. We apply our model to “forecast” the dynamics of the exchange rate and prices conditional on certain foreign exchange interventions in 2018, which provides important policy implications for our shock-identification exercise.

Keywords: Exchange rate pass-through; Inflation forecasting; Narrative sign restrictions; Structural scenario analysis (search for similar items in EconPapers)
JEL-codes: E31 F31 F41 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:118:y:2021:i:c:s0261560621001133

DOI: 10.1016/j.jimonfin.2021.102462

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