The Open Business Journal
2009, 2 : 1-6Published online 2009 January 29. DOI: 10.2174/1874915100902010001
Publisher ID: TOBJ-2-1
The Response of Exchange Rate Pass-Through to the Macroeconomic Environment
Department of Economics,
Waikato University Management School, Private Bag 3105, Hamilton 3240,
New Zealand
ABSTRACT
This paper offers new insights into the nature of exchange rate pass through modelling in the context of a Markov regime-switching environment. Using New Zealand data, the results indicate that pass through to import prices resulting from fluctuations in the exchange rate or exporter costs can be characterised as regime-specific. Furthermore, there is evidence that the probability of switching between higher and lower pass through regimes is significantly influenced by inflation where stable rates of inflation increase the probability of remaining in a low pass through regime.