Shock-dependent Exchange Rate Pass-through into Different Measures of Price Indices in the Case of Romania

Cristina Anghelescu ()
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Cristina Anghelescu: The Bucharest University of Economic Studies

Journal for Economic Forecasting, 2022, issue 3, 88-104

Abstract: The paper presents a new research direction in quantifying the exchange rate pass-through (ERPT) coefficient. Innovations brought to the standard approach refer to incorporating changes in economic conditions behind currency movements. Before applying the new methodology, fluctuations of the transmission magnitude are illustrated through a timevarying coefficient regression. At the same time, by estimating an asymmetric error correction model, different responses of the price indices according to the sign of the exchange rate movements are captured. In order to quantify the transmission mechanism in the context of shocks, a sign and zero restrictions Bayesian VAR is estimated. Empirical evidence show that shock-dependent transmission is heterogeneous. The highest values of the ERPT coefficient result when the exchange rate movements are caused by a monetary policy shock. Nevertheless, this shock has a reduced contribution in explaining the exchange rate dynamics in the case of Romanian economy.

Keywords: exchange rate pass-through; asymmetries; macroeconomic shocks; sign and zero restrictions Bayesian VAR (search for similar items in EconPapers)
JEL-codes: C11 C22 E31 E52 F31 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:rjr:romjef:v::y:2022:i:3:p:88-104

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