Exchange rate pass-through and inflation: A nonlinear time series analysis

Mototsugu Shintani, Akiko Hagiwara () and Tomoyoshi Yabu

Journal of International Money and Finance, 2013, vol. 32, issue C, 512-527

Abstract: This paper investigates the relationship between the exchange rate pass-through (ERPT) and inflation by estimating a nonlinear time series model. Based on a simple theoretical model of ERPT determination, we show that the dynamics of ERPT can be well approximated by a class of smooth transition autoregressive (STAR) models using the past inflation rate as a transition variable. We employ several U-shaped transition functions in the estimation of the time-varying ERPT to US domestic prices. The estimation result suggests that declines in the ERPT during the 1980s and 1990s are associated with lowered inflation.

Keywords: Import prices; Inflation indexation; Pricing-to-market; Smooth transition autoregressive models; Sticky prices (search for similar items in EconPapers)
JEL-codes: C22 E31 F31 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (67)

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Related works:
Working Paper: Exchange rate pass-through and inflation: a nonlinear time series analysis (2012)
Working Paper: Exchange Rate Pass-Through and Inflation: A Nonlinear Time Series Analysis (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:32:y:2013:i:c:p:512-527

DOI: 10.1016/j.jimonfin.2012.05.024

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