State space models for the exchange rate pass-through: determinants and null/full pass-through hypotheses
Abstract: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.
Document Type: Research Article
Affiliations: 1: Diretoria de Analise de Politicas Publicas – Fundacao Getulio Vargas (FGV), Rio de Janeiro, Brazil 2: Brazilian Institute of Economics (IBRE-FGV), Rio de Janeiro, Brazil 3: Institute of Mathematics and Statistics – Fluminense Federal University (UFF), Niteroi, Brazil
Publication date: December 1, 2013