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Pass-through with volatile exchange rates and inflation targeting

As central banks struggle against high inflation in the aftermath of the Covid-19 pandemic and the war in the Ukraine, it is essential to understand the open economy aspects of inflation determination. Using a Bayesian VAR with time-varying parameters and stochastic volatility, we analyze the behavi...

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Autores principales: Alexius, Annika, Holmberg, Mikaela
Formato: Online Artículo Texto
Lenguaje:English
Publicado: Springer Berlin Heidelberg 2023
Materias:
Acceso en línea:https://www.ncbi.nlm.nih.gov/pmc/articles/PMC10218776/
http://dx.doi.org/10.1007/s10290-023-00502-8
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author Alexius, Annika
Holmberg, Mikaela
author_facet Alexius, Annika
Holmberg, Mikaela
author_sort Alexius, Annika
collection PubMed
description As central banks struggle against high inflation in the aftermath of the Covid-19 pandemic and the war in the Ukraine, it is essential to understand the open economy aspects of inflation determination. Using a Bayesian VAR with time-varying parameters and stochastic volatility, we analyze the behavior of pass-through across time and in relation to macroeconomic variables. Pass-through increases with the size of the volatility of the exchange rate and the level, variance and persistence of shocks to domestic prices, which is in line with theory. The persistence of exchange rate shocks is associated with higher pass-through only for observations with low inflation. Furthermore, the effect of inflation persistence on pass-through is much higher for exchange rate appreciations than for depreciations.
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spelling pubmed-102187762023-05-30 Pass-through with volatile exchange rates and inflation targeting Alexius, Annika Holmberg, Mikaela Rev World Econ Original Paper As central banks struggle against high inflation in the aftermath of the Covid-19 pandemic and the war in the Ukraine, it is essential to understand the open economy aspects of inflation determination. Using a Bayesian VAR with time-varying parameters and stochastic volatility, we analyze the behavior of pass-through across time and in relation to macroeconomic variables. Pass-through increases with the size of the volatility of the exchange rate and the level, variance and persistence of shocks to domestic prices, which is in line with theory. The persistence of exchange rate shocks is associated with higher pass-through only for observations with low inflation. Furthermore, the effect of inflation persistence on pass-through is much higher for exchange rate appreciations than for depreciations. Springer Berlin Heidelberg 2023-05-26 /pmc/articles/PMC10218776/ http://dx.doi.org/10.1007/s10290-023-00502-8 Text en © The Author(s) 2023 https://creativecommons.org/licenses/by/4.0/Open Access This article is licensed under a Creative Commons Attribution 4.0 International License, which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons licence, and indicate if changes were made. The images or other third party material in this article are included in the article's Creative Commons licence, unless indicated otherwise in a credit line to the material. If material is not included in the article's Creative Commons licence and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder. To view a copy of this licence, visit http://creativecommons.org/licenses/by/4.0/ (https://creativecommons.org/licenses/by/4.0/) .
spellingShingle Original Paper
Alexius, Annika
Holmberg, Mikaela
Pass-through with volatile exchange rates and inflation targeting
title Pass-through with volatile exchange rates and inflation targeting
title_full Pass-through with volatile exchange rates and inflation targeting
title_fullStr Pass-through with volatile exchange rates and inflation targeting
title_full_unstemmed Pass-through with volatile exchange rates and inflation targeting
title_short Pass-through with volatile exchange rates and inflation targeting
title_sort pass-through with volatile exchange rates and inflation targeting
topic Original Paper
url https://www.ncbi.nlm.nih.gov/pmc/articles/PMC10218776/
http://dx.doi.org/10.1007/s10290-023-00502-8
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