Nonlinear exchange rate pass-through - An application of panel smooth transition regression model

• Main Authors: Shih-Hung Tai, 戴世鴻
• Other Authors: Po-Chin Wu
• Format: Others
• Language: en_US
• Published: 2015
• Online Access: http://ndltd.ncl.edu.tw/handle/tcayq8

碩士 === 中原大學 === 國際經營與貿易研究所 === 103 === Most previous studies on exchange rate pass-through employed linear models to estimate the exchange rate pass-through. Under the circumstance, the exchange rate pass-through is constant in spite of the change in external environment. However, this result cannot satisfy the practical regime-switching of export price level. Thus, this study tries to construct an environment-varying nonlinear model and estimate the level of exchange rate pass-through. To this end, we use the panel smooth transition regression (PSTR) model to investigate the level of exchange rate pass through, and use the debt ratio of a country as the transition variable. Through this model, we can discuss the threshold effect of debt ratio on exchange rate pass-through. To perform the empirical estimation, we choose the OECD member countries as sample objects. The sample period is from 1994 to 2013. The empirical results are summarized as follows. (1) The export price level displays a nonlinear and smooth process, depending on the debt ratio in different regimes. (2) Exchange rate pass-through varies with time and across countries, depending on the debt ratio in different regimes. (3) The larger the debt ratio is, the lower the exchange rate pass-through would be. (4) The threshold for debt ratio to generate regime-switching is 36.29%.