Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/50636
Authors: 
Nogueira Júnior, Reginaldo P.
León-Ledesma, Miguel A.
Year of Publication: 
2010
Series/Report no.: 
School of Economics discussion papers 10,02
Abstract: 
Recent literature has argued that exchange rate pass-through (ERPT) into domestic inflation has been declining in many countries following a dramatic change in inflation environment during the 1990s. Available empirical results face two central challenges: (i) the evidence on declining ERPT is mostly based on sample-splitting approaches and hence subject to a degree of arbitrariness; and (ii) the link between a lower ERPT and inflation environment is usually based on simple correlation analysis and hence silent about temporal causality. We address these issues by making use of a state-space model that allows ERPT to be time-varying and dependent on the inflation environment.
Subjects: 
exchange rate pass-through
inflation
state-space models
causality tests
JEL: 
E42
E52
E58
F31
F41
Document Type: 
Working Paper

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