exchange rate pass-through effect, identification, cointegration analysis
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.
Masten, I. (2017). Identification of the Equilibrium Exchange Rate Pass-Through Effect in Cointegrated VAR with an Application to the Euro area. Economic and Business Review, 19(1). https://doi.org/10.15458/85451.35