Econometrics of exchange rate pass-through
Ida Wolden Bache

2007

288pages

CONTENTS
CHAPTER1 INTRODUCTION AND OVERVIEW 1
1 Motivation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2 New open economy macroeconomics and exchange rate pass-through . 3
3 Overview of the thesis . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4 The econometrics of exchange rate pass-through . . . . . . . . . . . . . 15
CHAPTER2 ESTIMATING NEW KEYNESIAN IMPORT PRICE
MODELS 41
1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
2 New Keynesian import price equations . . . . . . . . . . . . . . . . . . 44
3 Empirical implementation . . . . . . . . . . . . . . . . . . . . . . . . 58
4 GMM estimation results . . . . . . . . . . . . . . . . . . . . . . . . . 65
5 Concluding remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
A Details on the derivation of the import price equations . . . . . . . . . . 71
B Variable definitions and sources . . . . . . . . . . . . . . . . . . . . . 76
C Cointegration analysis . . . . . . . . . . . . . . . . . . . . . . . . . . 77
ECONOMETRICS OF EXCHANGE RATE PASS-THROUGH vii
CHAPTER 3 ASSESSING GMM AND ML ESTIMATES OF NEW
KEYNESIAN IMPORT PRICE EQUATIONS 105
1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
2 The data generating process . . . . . . . . . . . . . . . . . . . . . . . . 107
3 Estimation procedures . . . . . . . . . . . . . . . . . . . . . . . . . . 112
4 Monte Carlo evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
5 Maximum likelihood estimation of New Keynesian import price equations
on UK data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
6 Concluding remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
CHAPTER 4 UNIT ROOTS AND EXCHANGE RATE
PASS-THROUGH TO UK PRICES 151
1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152
2 The structural VAR methodology . . . . . . . . . . . . . . . . . . . . . 155
3 Estimates of exchange rate pass-through to UK prices . . . . . . . . . . 158
4 Simulation evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167
5 Concluding remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170
A Variable definitions and sources . . . . . . . . . . . . . . . . . . . . . 175
B I(2) cointegration analysis . . . . . . . . . . . . . . . . . . . . . . . . 176
CHAPTER 5 ASSESSING THE STRUCTURAL VAR APPROACH TO
EXCHANGE RATE PASS-THROUGH 193
1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194
2 The model economy . . . . . . . . . . . . . . . . . . . . . . . . . . . 196
3 Mapping from the DSGE model to a VAR . . . . . . . . . . . . . . . . 217
4 Simulation experiments . . . . . . . . . . . . . . . . . . . . . . . . . . 220
5 Concluding remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228
A Equilibrium conditions DSGE model . . . . . . . . . . . . . . . . . . . 230
B Mapping from the VAR in relative prices to a VEQCM . . . . . . . . . 238
C The power of the cointegration test . . . . . . . . . . . . . . . . . . . . 241
D Variable definitions and sources . . . . . . . . . . . . . . . . . . . . . 243
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