Exchange Rate Pass-through into Inflation: A STAR Approach

18 Pages Posted: 11 Sep 2023

See all articles by Atsushi Sekine

Atsushi Sekine

School of Political Science and Economics, Meiji University

Date Written: September 6, 2023

Abstract

With rising import prices since the COVID-19 pandemic, I investigate exchange rate pass-through and inflation in Japan and the U.S., assuming import prices as importers' marginal cost. By estimating the exponential smooth transition autoregressive model that considers past inflation rates, I show that the pass-through is higher in both countries when past inflation rates deviate relatively strongly from zero. This result highlights the importance of the state of inflation in explaining the rising pass-through since the pandemic. The pass-through has been high over time and more responsive to past inflation rates in the U.S., but low even during high inflation and less responsive in Japan, suggesting stickier prices.

Keywords: import price, exchange rate pass-through, inflation, smooth transition autoregressive model

JEL Classification: C22, E31, F31

Suggested Citation

Sekine, Atsushi, Exchange Rate Pass-through into Inflation: A STAR Approach (September 6, 2023). Available at SSRN: https://ssrn.com/abstract=4562724 or http://dx.doi.org/10.2139/ssrn.4562724

Atsushi Sekine (Contact Author)

School of Political Science and Economics, Meiji University ( email )

1-1 Kanda Surugadai
Surugadai, Chiyoda, 101-8301
Japan

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