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Not All Exchange Rate Movements Are Alike : Exchange Rate Persistence and Pass-Through to Consumer Prices

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Title: Not All Exchange Rate Movements Are Alike : Exchange Rate Persistence and Pass-Through to Consumer Prices
Authors: Shirota, Toyoichiro Browse this author
Keywords: exchange-rate pass-through
exchange-rate persistence
range restriction
survey expectation
Issue Date: Sep-2017
Publisher: Faculty of Economics and Business, Hokkaido University
Journal Title: Discussion Paper, Series A
Volume: 311
Start Page: 1
End Page: 22
Abstract: This study develops a framework to identify persistent and transitory shocks in exchange-rate movements and to estimate the shock-specific exchange-rate pass-through to domestic prices. The framework combines a dataset of a long time series of exchange-rate forecasts since the 1980s with a range restriction that is a natural generalization of the standard sign restriction. The empirical results show that exchange rate pass-through is higher when a persistent shock dominates exchange-rate movements. The composition of persistent and transitory shocks varies over time. This study asserts that time variations of exchange rate pass-through are at least partly attributable to differences in shock-specific pass-through rates and variations in the composition of shocks over time. Applying our identification procedure to disaggregated prices of the CPI, we also find that a correlation between pass-through coefficients and frequencies of price adjustments is shock dependent. Specifically, the positive correlation, which is reported in Gopinath and Itskhoki [2010], disappears, when exchange-rate movements are transitory.
Type: bulletin (article)
Appears in Collections:Discussion paper > Series A

Submitter: 代田 豊一郎

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