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State-dependent exchange rate pass-through behavior

Luiggi Donayre () and Irina Panovska ()

Journal of International Money and Finance, 2016, vol. 64, issue C, 170-195

Abstract: We estimate a Bayesian threshold vector autoregression (TVAR) to study the relationship between exchange rate pass-through and economic activity in Canada and Mexico. Both the model comparison and the analysis of impulse–response functions provide strong evidence of a nonlinear relationship and suggest that the exchange rate pass-through is dependent on the state of the economy. In particular, the pass-through coefficient is higher when the growth rate of output is large, and this difference is statistically significant across regimes for both countries. Furthermore, the results show that the degree of pass-through is complete in the case of import prices and that it falls along the distribution chain of goods.

Keywords: Exchange rate pass-through; Bayesian analysis; Asymmetry; Threshold processes; Vector autoregression; MCMC methods (search for similar items in EconPapers)
JEL-codes: C11 C32 E31 F31 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:64:y:2016:i:c:p:170-195

DOI: 10.1016/j.jimonfin.2016.02.018

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