Exchange Rate Pass-Through and Inflation: A Nonlinear Time Series Analysis
Akiko Hagiwara () and
No 920, Vanderbilt University Department of Economics Working Papers from Vanderbilt University Department of Economics
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)
New Economics Papers: this item is included in nep-cba, nep-ifn, nep-mon and nep-opm
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http://www.accessecon.com/pubs/VUECON/vu09-w20.pdf First version, 2009 (application/pdf)
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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