Identification of the Equilibrium Exchange Rate Pass-Through Effect in Cointegrated VAR with an Application to the Euro area
Economic and Business Review, Vol: 19, Issue: 1
2017
- 132Usage
- 2Captures
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Metrics Details
- Usage132
- Downloads117
- Abstract Views15
- Captures2
- Readers2
Article Description
The exchange rate pass-through is of considerable importance for policy makers in open economies. Based on work of Johansen (2002) this paper develops the conditions for the identification of equilibrium pass-througheffect in cointegration framework. In addition, I specify the restrictions for testing the perfect equilibrium pass-through. The method is illustrated on the Euro area data and the pass-through effect of the Euro effective exchange rate. The results show that conditional on the type of economic shocks that lead to a permanent change in the exchange rate, the equilibrium pass-through effect can be both very low and high.
Bibliographic Details
School of Economics and Business University of Ljubljana
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