Asymmetric Exchange Rate Pass-through: Evidence from Nonlinear SVARs

Fernando Pérez Forero () and Marco Vega

No 63, Working Papers from Peruvian Economic Association

Abstract: We study the response of headline inflation to exchange rate innovations in a nonlinear context, where we distinguish between positive (depreciation) and negative (appreciation) exchange rate shocks. For that purpose, we specify a nonlinear Structural Vector Autoregressive (SVAR) model and we compute asymmetric impulse response functions for headline inflation after exchange rate innovations. We introduce a bootstrap Monte Carlo routine that allows to compute the error bands for these nonlinear impulse responses. Results for the Peruvian economy exhibit a remarkable statistically significant asymmetry in the response of headline inflation, both on impact and on propagation. In absolute values, the effect of a depreciation shock after one year is about twice the size of that corresponding to an appreciation shock. Roughly speaking, the one-year exchange rate pass-through to prices is 20 percent under a depreciation and only 10 percent under an appreciation.

Keywords: Exchange rate pass-through; asymmetric impulse responses; non-linear SVARs; Bootstrap; Monte Carlo (search for similar items in EconPapers)
JEL-codes: C32 E31 F31 (search for similar items in EconPapers)
Date: 2016-02
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://perueconomics.org/wp-content/uploads/2014/01/WP-63.pdf Application/pdf

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:apc:wpaper:2016-063

Access Statistics for this paper

More papers in Working Papers from Peruvian Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Nelson Ramírez-Rondán ().