Cover Image

Nonlinear pass-through of exchange rate shocks on inflation : a Bayesian smooth transition VAR approach

Hernán Rincón (The Central Bank of Colombia), Norberto Rodríguez (Universidad Nacional de Colombia)
Determining the exchange rate pass-through on inflation is a necessity for central banks as well as for firms and households. This is an apparently easy and intuitive task, but it faces high complexity and uncertainty. This paper examines the short and long-term impact of an exchange rate shock on inflation along the distribution chain in the presence of endogeneity, nonlinearity and asymmetry. The econometric model is a smooth transition autoregressive vector estimated by Bayesian methods. This incorporates a model of pricing and the endogenous nature of the exchange rate pass-through (PT). The paper uses monthly data from Colombia for the period 2002 to 2015. The main findings are that PT is incomplete (as predicted and found by most of the recent literature) endogenous and then changes over time, nonlinear and asymmetric in the short and long terms to the state of the economy (i.e., PT is nonlinear state-dependent) and to exchange rate shocks. Historically, findings have showed that the accumulated PT on inflation of import prices rises from 20% in the first month of the exchange rate shock to a maximum of around 66% in the first year. The equivalent figures on the inflation of producer goods go from 13% to 52%; on the inflation of imported consumer goods from 6% to 48%, and on the CPI inflation from 4% to 30%. At four years, the respective figures for accumulated PT are 98%, 84%, 94% and 80%, but uncertainty about these estimates increases rapidly over time.
Year of publication:
January 2016
Authors: Rincón Castro, Hernán ; Rodríguez-Niño, Norberto
Publisher: Geneva, Switzerland : Graduate Institute of International and Development Studies
Subject: exchange rate pass-through | pricing along the distribution chain | endogeneity | nonlinearity | asymmetry | logistic smooth transition VAR (LST-VAR) | Bayesian approach | VAR-Modell | VAR model | Exchange Rate Pass-Through | Exchange rate pass-through | Inflation | Wechselkurs | Exchange rate | Schock | Shock | Bayes-Statistik | Bayesian inference | Nichtlineare Regression | Nonlinear regression | Schätzung | Estimation | Theorie | Theory | Zeitreihenanalyse | Time series analysis
Extent:
1 Online-Ressource (circa 69 Seiten)
Illustrationen
Series:
Working paper / Graduate Institute of International and Development Studies. - Genève : [Verlag nicht ermittelbar], ZDB-ID 2523350-6. - Vol. no. IHEIDWP2016-13
Type of publication: Book / Working Paper
Type of publication (narrower categories): Arbeitspapier ; Working Paper ; Graue Literatur ; Non-commercial literature
Language: English
Other identifiers:
hdl:10419/156129 [Handle]
Classification: F31 - Foreign Exchange ; E31 - Price Level; Inflation; Deflation ; E52 - Monetary Policy (Targets, Instruments, and Effects) ; C51 - Model Construction and Estimation ; C52 - Model Evaluation and Testing
Source:
ECONIS - Online Catalogue of the ZBW
Persistent link: https://ebvufind01.dmz1.zbw.eu/10011554700
Similar items by subject
Similar items by person