Exchange Rate Pass-Through and Inflation: A Nonlinear Time Series Analysis

Mototsugu Shintani, Akiko Hagiwara () and Tomoyoshi Yabu

No 920, Vanderbilt University Department of Economics Working Papers from Vanderbilt University Department of Economics

Abstract: This paper investigates the relationship between the exchange rate pass-through (ERPT) and inflation by estimating a nonlinear time series model. Using 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 with inflation as a transition variable. We employ several U-shaped transition functions in the estimation of the time-varying ERPT to U.S. 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: 2009-11
New Economics Papers: this item is included in nep-cba, nep-ifn, nep-mon and nep-opm
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Citations: View citations in EconPapers (15)

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http://www.accessecon.com/pubs/VUECON/vu09-w20.pdf First version, 2009 (application/pdf)

Related works:
Journal Article: Exchange rate pass-through and inflation: A nonlinear time series analysis (2013)
Working Paper: Exchange rate pass-through and inflation: a nonlinear time series analysis (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:van:wpaper:0920

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