Univ., Diss.--Bern, 2007.

The current discussion of Inflation Targeting (IT) in emerging economies deals with the effects that nominal exchange rate movements have on the overall inflation rate. The literature has focused in the analysis of the advantages and disadvantages that IT has with respect to other monetary policy regimes and the relevancy of the nominal exchange rate pass-through effect into inflation. So far none of them have dealt with the differences arising from the policy instruments used to fight off inflationary pressure under an IT regime. The literature on IT for emerging economies can be separated in two categories. In the first category the monetary authority uses interest rate policy as the instrument variable to implement and control the inflation target. The second category illustrates when the monetary authorities use international reserves as the instrument to influence the nominal exchange rate in such a way that the depreciation rate is consistent with the overall inflation target. This dissertation presents a model in which both policy instruments are available to the monetary authority. This model is used to address two questions: i) Is IT better than a monetary rule regime? and ii) Is it better to intervene directly in the foreign exchange market rather than use interest rate policy to control exchange rate pressure on inflation, or are they equivalent? The results show that there are important differences between these choices and the answers to these questions are shock dependent. These differences arise because the intervention needed under IT is accompanied by important output costs or benefits depending on the direction of the shock being analyzed. Regarding the pass-through effect, some studies have shown that the pass-through effect from currency depreciation into inflation has been decreasing and therefore is becoming less of an issue for these countries. The literature has offered different explanations for these declines but so far they have not been directly linked to the adoption of IT. This dissertation shows that lower pass-through levels can be a natural result of fear of floating observed in emerging countries that adopted IT and therefore exchange rate effects on inflation are still relevant.

There are four chapters in my dissertation. Chapter one gives a brief introduction of the three essays. Chapter two empirically analyzes the interaction among conventional monetary policy, foreign exchange intervention and the exchange rate in a unifying model for Japan. I have several findings. First, the results lend support to the leaning-against-the-wind hypothesis. Second, conventional monetary policy has as great influence on the exchange rate as foreign exchange intervention in Japan. Third, intervention in Japan is ineffective or may be counter-effective, so escaping liquidity trap by intervention alone may not be a feasible way. Chapter three empirically identifies the sources of exchange rate movements of Japan vis--vis the US, and investigates the role of the exchange rate in the macro economy adjustment. It finds that real shocks dominate nominal shocks in explaining the exchange rate movements, with relative real demand shocks as the major contributor. And the exchange rate market does not create many shocks. The overall result supports that the bilateral exchange rate in Japan is a shock-absorber rather than a source of shock. Chapter four provides cross-country and time-series evidence on the extent of exchange rate pass-through at different stages of distribution - import prices, producer prices and consumer prices - for eight major industrial countries: United States, Japan, Canada, Italy, UK, Finland, Sweden and Spain. I find exchange rate pass-through incomplete in many horizons, though complete pass-through is observed occasionally. The degree of pass-through declines and time needed for complete pass-through lengthens along the distribution chain. Furthermore, I find that a greater pass-through coefficient is associated with an economy that is smaller in size with higher import shares, more persistent and less volatile exchange rate shocks, more volatile monetary shocks, higher inflation rate, and less volatile GDP.

This dissertation consists of four papers in structural empirics that can be broadly categorized into two areas. The first three papers revolve around the structural estimation of demand for differentiated products and several applications thereof (Berry (1994), Berry, Levinsohn and Pakes (1995), Nevo (2000)), while the fourth paper examines the U.S. Treasury yield curve by estimating yields as linear functions of observable state variables (Ang and Piazzesi (2003), Ang et al. (2006)). The central focus of each paper are the underlying economics. Nevertheless, all papers share a common empirical approach. Be it prices of beers in Sweden or yields of U.S. Treasury bonds, it is assumed throughout that the economic variables of interest can be modeled by imposing specific parametric functional forms. The underlying structural parameters are then consistently estimated based on the variation in available data. Consistent estimation naturally hinges on the assumption that the assumed functional forms are correct. Another way of viewing this is that the imposed functions are flexible enough not to impose restrictive patterns on the data that ultimately lead to biased estimates of the structural parameters and thereby produce misleading conclusions regarding the underlying economics. In principle, the danger of misspecification could therefore be avoided by adopting sufficiently flexible functional forms. This, however, typically requires the estimation of a growing number of structural parameters that determine the underlying economic relationships. As an example, we can think of the estimation of differentiated product demand. The key object of interest here is the substitution patterns between the products. That is, we are interested in what happens to the demand of good X and all its rival products, as the price of good X increases. With N products in total, we could collect the product-specific changes in demand in a vector with N entries. It is also possible, however, that the price of any other good Y changes and thereby alters the demands for the remaining varieties. Thus, in total, we are interested in N2 price effects on product-specific demand. With few products, these effects could be estimated directly and the risk of functional misspecification could be excluded (Goolsbee and Petrin (2004)). With 100 products, however, we are required to estimate 10,000 parameters, which rarely, if ever, is feasible. This is the curse of dimensionality. Each estimation method employed in the four papers breaks this curse by imposing functions that depend on relatively few parameters and thereby tries to strike a balance between the necessity to rely on parsimonious structural frameworks and the risk of misspecification. This is a fundamental feature of empirical research in economics that makes it both interesting and challenging. / <p>Diss. Stockholm :  Stockholm School of Economics, 2012. Introduction together with 4 papers</p>

In this study, exchange rate pass-through into the export prices and import prices is analyzed separately at the disaggregate level. The study also attempts to differentiate exchange rate pass-through in the short-run and long-run. To analyze pass-through in the short-run, dynamic modeling is used. To analyze pass-through in the long-run, cointegration analysis is conducted. Estimation results show that exchange rate pass-through into the import prices is complete even at the disaggregate level. However, there is variation in the pass-through into the export prices across sectors both in the short-run and long-run. Not all exporting sectors, even in a small open economy like Turkey, are price takers in the foreign markets.

This study investigates the degree of exchange rate pass-through to prices in different sectors for Turkish economy using Johansen Cointegration procedure. The study is based on quarterly data from 1994:1 to 2003:4. In this study it is concluded that the long-run exchange rate pass-through to overall wholesale prices for Turkey is very high and nearly complete. High pass-through degrees are also valid for different sub-sectors wholesale prices like private, public, manufacturing industry and energy. Moreover, it is detected that the prices set by public sector have higher exchange rate pass-through but longer adjustment period as compared to private sector prices.

This dissertation consists of three research studies on capital flows to South Asian countries, estimation of interest rate pass through in Pakistan and the relative city price convergence in Pakistan. The study has used panel data techniques for empirical estimations. The first study attempts to estimate capital mobility in South Asia using saving investment relationship technique and real interest rate differentials methods as suggested by Frankel (1992). The study finds that real interest rate differentials of South Asian countries are stationary and mean reverting with North American, European and Asian countries. Although the RIDS are stationary showing strong evidence of capital mobility, the savings investment correlation is significant. The correlation of savings and investment decreased after 1990s, the post liberalization period implying increased capital mobility afterwards. The RIDs technique provided stronger evidence of than savings and investment correlation technique. The second study is on the estimation of interest rate pass through in Pakistan using two types of data sets i.e. aggregate bank type and retail bank data. The study finds that both lending, deposit and Treasury Bill (TB) rates are non stationary using aggregate data. The lending and TB rate are found to be cointegrated but deposit rate is not found to be cointegrated. The IRPT of four types of banks is found to be less than 1 but three banks showed the IRPT to be higher than 0.5. The highest IRPT is 0.72 in the case of nationalized banks followed by o.70 by privatized banks. The foreign banks IRPT are 0.60. The lowest IRPT is estimated at 0.3. The error correction model estimates overall IRPT to be 0.6 and the convergence parameter is 0.05. It is low and implies that convergence takes time. The study does not find change in 2005 after January 2005 but the speed of adjustment increased when the lending rate is below equilibrium. The retail data provides evidence that lending and deposit rates both are non stationary and cointegrated with TB rate. I found evidence of complete lending rate pass through with Spatial GLS but Phillips Loretain (1991) model shows incomplete pass through. The deposit rate is found to be incomplete and sticky with both the techniques. The third essay provides evidence on relative city price convergence in 35 Pakistani cities with 2 numeraire cities of Lahore and Karachi. The study estimates the autocorrelation coefficient with 2 techniques i.e. OLS and Spatial GLS. Furthermore city wise half life of price shock is also estimated. The empirical evidence supports the hypothesis of convergence in Pakistani cities with both the numeraire cities. The overall half life is estimated to be less than 6 months but there is found heterogeneity in the city wise half life estimates. The half life estimates from Spatial GLS are found to be lower than OLS. The convergence has been found even in the case of distant bordering cities. The overall results support that domestic Purchasing Power Parity holds in Pakistan.

Submitted by Veridiana de Andrade Nogueira (veridiana.nogueira@safra.com.br) on 2012-03-05T18:06:51Z No. of bitstreams: 1 Veridiana_Nogueira_dissertacao_MPE.pdf: 355072 bytes, checksum: 6d7ce3ba52bc1eceff0a03b598f9feb5 (MD5) / Approved for entry into archive by Gisele Isaura Hannickel (gisele.hannickel@fgv.br) on 2012-03-05T19:13:37Z (GMT) No. of bitstreams: 1 Veridiana_Nogueira_dissertacao_MPE.pdf: 355072 bytes, checksum: 6d7ce3ba52bc1eceff0a03b598f9feb5 (MD5) / Made available in DSpace on 2012-03-05T19:14:40Z (GMT). No. of bitstreams: 1 Veridiana_Nogueira_dissertacao_MPE.pdf: 355072 bytes, checksum: 6d7ce3ba52bc1eceff0a03b598f9feb5 (MD5) Previous issue date: 2012-02-03 / This paper estimates the transmission of exchange rate changes to price indices in Brazil using the methodology of structural autoregressive vectors (SVAR) with vector error correction (VEC). The study period begins on the introduction of the inflation targeting (June 1999) and ends in September 2011. The results support the evaluation that monetary policy has matured in recent years, with a concomitant improvement in the macroeconomic environment. Comparing our results with previous studies, we found a significant reduction in the pass-through of the exchange rate for inflation. / Este trabalho estima a transmissão da variação cambial aos índices de preços brasileiros, utilizando a metodologia de vetores autorregressivos estruturais (SVAR) com vetores de correção de erros (VEC). O período estudado tem início na introdução do regime de metas para a inflação (junho de 1999) e se encerra em setembro de 2011. Os resultados reforçam a avaliação de que houve amadurecimento da política monetária nos últimos anos, concomitantemente a uma melhora do ambiente macroeconômico. Na comparação dos nossos resultados com estudos anteriores, encontramos significativa redução do pass-through da taxa de câmbio para os índices de inflação.

Esta dissertação teve como objetivo analisar teórica e empiricamente o repasse das oscilações cambiais para os níveis de preços no Brasil, através da estimação do pass-through. O período analisado foi de 1994 a 2014, com foco no período de taxa de câmbio flexível. O pass-throughfoi estimado em duas abordagens distintas, através de um OLS em janelas fixas (rollingwindows) onde os parâmetros são fixos no tempo e através de um modelo com parâmetros variáveis no tempo, pelo Filtro de Kalman. Os resultados apresentaram evidências de uma queda do repasse com a adoção do regime de câmbio flutuante, um repasse cambial menor após apreciações do que após depreciações eque reações do IGP-DI do IPA são mais rápidas e intensas a choques da taxa de câmbio que o IPCA. / This dissertation analyzed theoretically and empirically the pass-through from exchange ratetoinflationin Brazil. The analyzed period extends from 1994 to 2014, focusing on the floating exchange rate regime. Two methodologies were employed: i) an OLS through rolling windowsin which the parameters are fixed in time and ii) aKalman filter, with varying-parameters. The results suggested a lower pass-through since the adoption of a floating exchange rate regime andalso a lower pass-through after an appreciation then after depreciations. In addition, responses of the IGP-DI and IPAfrom exchange rate shocks are faster and more intense thanthose of IPCA.

Recentemente, importantes questionamentos emergiram na literatura sobre repasse cambial. Mais especificamente, foi dada crescente atenção à hipótese de Taylor (2000) de que o pass-through se reduziu em diversos países como conseqüência do ambiente de inflação mais baixa. Esta dissertação investiga o tema através da aplicação de painéis dinâmicos para um conjunto de economias desenvolvidas. Deste modo, são estimados modelos de efeito fixo e Arellano-Bond em janelas fixas (rolling windows), que apontam para uma redução substancial na transmissão do câmbio para a inflação. A análise de potenciais determinantes macroeconômicos dessa queda indica que o ambiente inflacionário foi o principal elemento por trás do fato, sobretudo nos anos oitenta e noventa, em que o processo de desinflação foi mais intenso. Por outro lado, os anos dois mil apresentam um coeficiente de pass-through bastante baixo e estável, visto que o cenário de inflação baixa já estava consolidado para o conjunto de economias analisadas. / Recently, economists have become more interested in studying exchange rate pass-through. More specifically, increasing attention has been given to Taylors (2000) hypothesis that the passthrough has declined in several countries as a result of a lower inflation environment. This dissertation examines this issue through the application of dynamic panels for a number of developed economies. Panel data models are estimated here using fixed effects and Arellano- Bond estimators in rolling windows. The results point to a substantial reduction in the transmission of exchange rate to inflation. The analysis of potential macroeconomic determinants of this decline indicates that the inflationary environment was the main factor behind this fact, mainly in the eighties and nineties when the disinflation process was more intense worldwide. On the other hand, in the first decade of this century the pass-through coefficient was fairly low and stable, perhaps because the scenario of low inflation was already a longstanding reality to the economies analyzed in the present study.