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A Threshold Vector Autoregression Model of Exchange Rate Pass-Through in Mexico

Author

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  • Abdul Aleem

    (Department of Mathematics and Statistics [Canada] - Dalhousie University [Halifax], CEPN - Centre d'Economie de l'Université Paris Nord - UP13 - Université Paris 13 - USPC - Université Sorbonne Paris Cité - CNRS - Centre National de la Recherche Scientifique)

  • Amine Lahiani

    (Econométrie - ESC Rennes School of Business - ESC [Rennes] - ESC Rennes School of Business - LEO - Laboratoire d'Économie d'Orleans [UMR7322] - UO - Université d'Orléans - UT - Université de Tours - CNRS - Centre National de la Recherche Scientifique)

Abstract

Considering nonlinearities in the exchange rate pass-through to domesticprices, this paper estimates exchange rate pass-through in Mexico. We examine responses of domestic prices to a positive one unit exchange rate shock by estimating a threshold vector autoregression (TVAR) model. A monthly rate of inflation of 0.79% acts as a threshold. The exchange rate pass-through to domestic prices is statistically significant above the threshold level of the inflation rate and statistically insignificant below it.

Suggested Citation

  • Abdul Aleem & Amine Lahiani, 2014. "A Threshold Vector Autoregression Model of Exchange Rate Pass-Through in Mexico," Post-Print halshs-01022416, HAL.
    • Handle: RePEc:hal:journl:halshs-01022416
    DOI: 10.1016/j.ribaf.2013.05.001
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01022416
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    More about this item

    Keywords

    Exchange rate pass-through; Prices; Threshold vector autoregression;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications

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