Exchange rate pass-through and inflation: A nonlinear time series analysis

Mototsugu Shintani, Akiko Terada-Hagiwara, Tomoyoshi Yabu

Research output: Contribution to journalArticle

35 Citations (Scopus)

Abstract

This paper investigates the relationship between the exchange rate pass-through (ERPT) and inflation by estimating a nonlinear time series model. Based on 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 using the past inflation rate as a transition variable. We employ several U-shaped transition functions in the estimation of the time-varying ERPT to US domestic prices. The estimation result suggests that declines in the ERPT during the 1980s and 1990s are associated with lowered inflation.

Original languageEnglish
Pages (from-to)512-527
Number of pages16
JournalJournal of International Money and Finance
Volume32
Issue number1
DOIs
Publication statusPublished - 2013

Keywords

  • Import prices
  • Inflation indexation
  • Pricing-to-market
  • Smooth transition autoregressive models
  • Sticky prices

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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