Exchange Rate Pass-Through, Monetary Policy, and Real Exchange Rates: Iceland and the 2008 Crisis

We use detailed data for Iceland to examine two often-neglected aspects of the exchange rate pass-through problem. First, we investigate whether the pass-through coefficient varies with the degree of international tradability of goods. Second, we analyze if the pass-through coefficient depends on the monetary policy framework. We consider 12 disaggregated price indexes in Iceland for 2003–2019, a period that includes Iceland’s banking and currency crisis of 2008. We find that the pass-through declined around the time Iceland reformed its flexible inflation targeting, and that the coefficients are significantly higher for tradable than for nontradables.

Estimating Impulse-Response Functions for Macroeconomic Models using Directional Quantiles

A multivariate vector autoregressive model is used to construct the distribution of the impulse-response functions of macroeconomics shocks. In particular, the paper studies the distribution of the short-, medium-, and long-term effects after a shock. Structural and reduced form quantile vector autoregressive models are developed where heterogeneity in conditional effects can be evaluated through multivariate quantile processes. The distribution of the responses can then be obtained by using uniformly distributed random vectors. An empirical example of exchange rate pass-through in Argentina is presented.

Exchange rate pass-through in Russian regions: Searching for spatial dependencies

Introduction. The article examines the spatial heterogeneity and factors of the exchange rate pass-through effect in consumer prices in Russian regions. Two hypotheses are tested. The first hypothesis is that there are differences in the magnitude of the passthrough between the Russian regions, the second is the significant influence of spatial relationships between regions on the magnitude of the pass-through effect. Theoretical analysis. The factors of the interregional differences in the pass-through effect are analyzed: the share of imports in the consumption structure, the share of value added produced in the domestic market in the final price of goods, transaction costs, the level of competition and the market structure. Empirical analysis. First pass-through estimates were obtained by means of vector autoregression model. Then the spatial dependence of the exchange rate pass-through was investigated on the basis of the global Moran and Geary indices, LISA, SAR and SEM models. Results. The results indicate the heterogeneity of the pass-through effect in Russian regions, which confirms the first of the hypotheses put forward. Confirmation of the second hypothesis was found only for food products in the short term, which is due to the nature of commodity flows between Russian regions. It is concluded that it is necessary to study the spatial relationships of the pass-through effect based on disaggregated prices.

Incomplete Exchange Rate Pass-through and International Monetary Policy Cooperation

There is no consensus on the existence of welfare gains from international monetary policy cooperation. This study adds to the debate by providing a new open macroeconomics model with incomplete exchange rate pass-through. We find that, from a global perspective, the welfare gains from international monetary policy cooperation arise with incomplete exchange rate pass-through. Furthermore, the country’s incentive for cooperation increases with its degree of exchange rate pass-through. Cooperation benefits small countries with high pass-through; however, it is disadvantageous to large countries with low pass-through. In addition, when there is in the absence of cooperation, fixed exchange rate regime is preferred for a country suffering from monetary uncertainty, particularly for small economies with high exchange rate pass-through.

Exchange Rate Pass-Through into Japanese Import Prices: Evidence at Both Bilateral and Product Levels

This study investigates the degree of the exchange rate pass-through to Japanese bilateral import prices at the product level for major Japan's trading partners (US, EU, and Asian NIEs) for a period (1998:1-2010:12) dubbed as Japan's lost decade and marked by a gradual the exchange rate appreciation against the US dollar. By considering both country and product dimensions in a unified framework, this study makes one of the first attempts to analyze the responsiveness of Japanese import prices to exchange rate movement. The empirical analysis suggests a declining exchange rate pass-through to Japanese import prices at the bilateral level in some product categories but increasing in others. However, we find no evidence of the changes in exchange rate pass-through for manufacturing, machinery, and overall product level for each of these partners. Our finding sheds light on the recent decline in exchange rate pass-through to Japanese multilateral import prices and helps calibrate its trade relationship with its partner countries.