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Exchange rate pass-through, import prices and inflation under structural breaks

Author

Listed:
  • Arintoko

    (Faculty of Economics, Universitas Jenderal Soedirman)

Abstract

This research estimates the exchange rate pass-through (ERPT) into import prices by applying an extension of the basic model of ERPT on Indonesia. It estimates models of cointegration and errorcorrection mechanism (ECM), with and without structural breaks. It uses the techniques of ZivotAndrews and of Gregory-Hansen to test for structural breaks and cointegration with the structural breaks, respectively. The results show that with the control variables, inflation affects import prices and lower the pass-through for short term, in a condition of free floating exchange rate. In the short term, with the inclusion of structural breaks, significant inflation affects import prices and lowers the ERPT coefficient.

Suggested Citation

  • Arintoko, 2011. "Exchange rate pass-through, import prices and inflation under structural breaks," Economic Journal of Emerging Markets, Universitas Islam Indonesia, vol. 3(1), pages 55-75, April.
    • Handle: RePEc:uii:journl:v:3:y:2011:i:1:p:55-75
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    References listed on IDEAS

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    More about this item

    Keywords

    Exchange rate pass-through; inflation; structural breaks; cointegration; error-correction mechanism;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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