State-Dependent Exchange Rate Pass-Through Behavior

46 Pages Posted: 20 Jan 2015 Last revised: 16 Oct 2015

See all articles by Luiggi Donayre

Luiggi Donayre

University of Minnesota - Duluth

Irina Panovska

University of Texas at Dallas

Date Written: October 14, 2015

Abstract

We estimate a Bayesian threshold vector autoregression (TVAR) to study the relationship between exchange rate pass-through and economic activity in Canada and Mexico. Both the model comparison and the analysis of impulse-response functions provide strong evidence of a nonlinear relationship and suggest that the exchange rate pass-through is dependent on the state of the economy. In particular, the pass-through coefficient is higher when the growth rate of output is large and this difference is statistically significant across regimes for both countries. Furthermore, the results show that the degree of pass-through is complete in the case of import prices and that it falls along the distribution chain of goods.

Keywords: exchange rate pass-through, Bayesian Analysis, threshold process, Vector Autoregression, MCMC methods

JEL Classification: C11, C32, E31, F31

Suggested Citation

Donayre, Luiggi and Panovska, Irina, State-Dependent Exchange Rate Pass-Through Behavior (October 14, 2015). Available at SSRN: https://ssrn.com/abstract=2551448 or http://dx.doi.org/10.2139/ssrn.2551448

Luiggi Donayre

University of Minnesota - Duluth ( email )

1318 Kirby Drive
Duluth, MN 55812
United States
2187268463 (Phone)

Irina Panovska (Contact Author)

University of Texas at Dallas ( email )

2601 North Floyd Road
Richardson, TX 75083
United States

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