Time-Varying Exchange Rate Pass-Through: Experiences of Some Industrial Countries

34 Pages Posted: 20 Sep 2007

See all articles by Toshitaka Sekine

Toshitaka Sekine

Bank of Japan - Research and Statistics Department

Date Written: March 2006

Abstract

This paper estimates exchange rate pass-through of six major industrial countries using a time-varying parameter with stochastic volatility model. Exchange rate pass-through is divided into impacts of exchange rate fluctuations to import prices (first-stage pass-through) and those of import price movements to consumer prices (second-stage pass-through). The paper finds that both stages of pass-through have declined over time for all the sample countries. The decline in second-stage pass-through is associated with the emergence of the low and stable inflation environment as well as a rise in import penetration, while the relationship to the inflation environment is weak for first-stage pass-through.

Keywords: exchange rate pass-through, impacts of commodity prices, time-varying parameter, stochastic volatility, Markov Chain Monte Carlo

JEL Classification: F40, E58, C11, E31, F41

Suggested Citation

Sekine, Toshitaka, Time-Varying Exchange Rate Pass-Through: Experiences of Some Industrial Countries (March 2006). BIS Working Paper No. 202. Available at SSRN: https://ssrn.com/abstract=892508 or http://dx.doi.org/10.2139/ssrn.892508

Toshitaka Sekine (Contact Author)

Bank of Japan - Research and Statistics Department ( email )

2-1-1 Hongoku-cho
Nihonbashi
Chuo-ku Tokyo 103-8660
Japan
+81 3 3279-1111 (Phone)
+81 3 5255-6758 (Fax)

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