Exchange Rate Pass-Through into Romanian Price Indices: A VAR Approach

This paper investigates the exchange rate pass-through (ERPT) into import prices, producer prices and several different measures of consumer prices indices for Romanian economy. In order to determine the size, describe the dynamics and identify the asymmetries in ERPT the paper employs an array of econometric methods belonging to the VAR family. The methods range from RVARS (on different price indices and/or on a rolling window), Sign-restriction VARs (also using different consumer inflation measures), MS-VAR, TAR and SETAR, the last three methods being naturally equipped to capture various types of asymmetries. The results point to an almost complete passthrough into import prices and incomplete pass-through into producer and consumer prices. In all cases except import prices the ERPT displays a decline in magnitude over the analysed time interval. The paper also finds important asymmetries with respect to sign and size of the exchange rate, size of inflation and time period.