State space models for the exchange rate pass-through: determinants and null/full pass-through hypotheses

In this article, we formulate linear Gaussian state space models for the estimation of the exchange rate pass-through of the Brazilian Real against the US Dollar, using monthly data from August 1999 to August 2008. The state space/Kalman filtering framework allows the investigation of some empirical...

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Bibliographic Details
Published in:Applied economics 2013-12, Vol.45 (36), p.5062-5075
Main Authors: de Souza, Rafael Martins, Maciel, Luiz Felipe Pires, Pizzinga, Adrian
Format: Article
Language:English
Subjects:
Applied economics
Economic models
Estimating techniques
exchange rate pass-through
Exchange rates
Foreign exchange rates
Hypotheses
Hypothesis
Inflation
Kalman filter
Kalman filters
Linear models
linear restrictions
Monetary policy
state space model
Studies
U.S.A
Vector space
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Summary:In this article, we formulate linear Gaussian state space models for the estimation of the exchange rate pass-through of the Brazilian Real against the US Dollar, using monthly data from August 1999 to August 2008. The state space/Kalman filtering framework allows the investigation of some empirical aspects previously suggested in the literature, such as time-varying coefficients and null/full pass-through hypotheses. We also test whether some theoretical 'determinants' of the pass-through are statistically significant in the period considered. The principal findings are as follows: (1) the data offer strong support to a time-varying pass-through; and (2) the variance of the exchange rate pass-through, the monetary policy and the trade flow have shown to be relevant determinants of the exchange rate pass-through.
ISSN:0003-6846
1466-4283
DOI:10.1080/00036846.2013.815397