Deep habits and exchange rate pass-through
| Autor: | Punnoose Jacob, Lenno Uusküla |
|---|---|
| Rok vydání: | 2019 |
| Předmět: |
Economics and Econometrics
Bayes estimator 050208 finance Control and Optimization Applied Mathematics media_common.quotation_subject 05 social sciences Exchange-rate pass-through Monetary economics Local currency Shock (economics) Exchange rate Demand curve 0502 economics and business New Keynesian economics Econometrics Economics Dynamic stochastic general equilibrium Habit 050207 economics media_common |
| Zdroj: | Journal of Economic Dynamics and Control. 105:67-89 |
| ISSN: | 0165-1889 |
| DOI: | 10.1016/j.jedc.2019.05.011 |
| Popis: | Habit persistence at the level of individual goods varieties can explain incomplete exchange rate pass-through to international prices. Deep habits give rise to a dynamic import demand function that leads to import price markup adjustments, independently of nominal pricing frictions. Augmenting a two-country DSGE model with deep habits, we obtain low exchange rate pass-through to import prices even when nominal local currency price rigidities are negligibly low. As nominal pricing frictions become more important, the presence of deep habits further impedes the pass-through of exchange rate fluctuations. Estimating model variants with limited information as well as full information methods, we find that the deep habits model requires much lower degrees of nominal price rigidities to match empirical measures of the pass-through of exchange rate fluctuations to US import prices. |
| Databáze: | OpenAIRE |
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