Time-Varying Conditional Exchange Rate Pass-Through: Do Shocks Also Matter in Peru?

Objetivos / Objectives: 
The objective is to enhance the understanding of ERPT by analyzing its dependence on shocks over time. This involves explicitly modeling the causes of exchange rate fluctuations and evaluating how internal and external shocks influence the magnitude, speed, and persistence of ERPT.
Metodología / Methodology: 
We employ a time-varying parameter vector autoregression with stochastic volatility (TVP-VAR-SV) model, incorporating sign and zero restrictions. The dataset includes six quarterly variables from the Central Reserve Bank of Peru, covering 2000Q1 to 2019Q4. The identification strategy involves categorizing shocks into six types, using economic theory to impose sign and zero restrictions. We use Bayesian estimation techniques to obtain simulations of the reduced form parameters. Finally, Gibbs sampling is utilized to derive point estimates and confidence intervals.
Principales resultados / Main results: 
The main results indicate that the exchange rate pass-through (ERPT) to import prices is positive for domestic demand, monetary, exogenous exchange rate, and global supply shocks, but negative for domestic supply and global demand shocks. ERPT from monetary shocks is highest at 67%, while domestic supply shocks show a negative 54% ERPT. ERPT to consumer prices is generally lower and more stable over time, with domestic demand, domestic supply, and global demand shocks exhibiting negative ERPT. The speed of ERPT varies, with global shocks being the fastest and domestic demand shocks the slowest. Temporal variability of ERPT is confirmed, influenced by economic conditions and structural changes in Peru.
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Nombre, correo electrónico y crédito académico de autores: 
Elvis Rojas Monguia, elvis.rojasm@pucp.edu, Teaching Assistant at Pontificia Universidad Católica del Perú (PUCP).
Resumen / Abstract: