Pass-through Coefficients Research Articles

Redefining and Calculating the Pass-through Rate Coefficient of Nonpoint Source Pollutants at Different Spatial Scales

Accurately converting nonpoint source pollution loads from the watershed scale to administrative scale is challenging. A promising solution is calculating the pass-through rate coefficient of nonpoint source pollutants (PTRE–NPS) at the watershed scale and discretizing the watershed units on grids with the same area but with different PTRE–NPS information. However, the pollution load of agricultural nonpoint sources has received far more attention than the PTRE–NPS. Moreover, as most of the existing PTRE–NPS results are obtained by distributed, semi-distributed models and the field monitoring of small watersheds, they are not easily extended to the national-scale management of nonpoint source pollution. The present study proposes a new conception of PTRE-NPS and tests it on different spatial scales by a coupled model, which captures the entry of agricultural nonpoint source pollutants into rivers and lakes. The framework includes five major modules: a pollutant driving and loss module, a surface runoff module, a soil erosion module, a subsurface runoff module, and a retention module. The model was applied in simulations of agricultural nonpoint source pollution in the Hongfenghu reservoir watershed with a karst hydro-geomorphology, which exists in the mountainous region of southwest China. On the watershed scale, the PTRE–NPS of total nitrogen (TN) and total phosphorous (TP) ranged from 0 to 2.62 (average = 0.18) and from 0 to 3.44 (average = 0.19), respectively. On the administrative scale, the PTRE–NPS of TN and TP were highest in Baiyun Town. The TN and TP loads of the agricultural nonpoint source pollution in the rivers and lakes of the Hongfenghu reservoir watershed were 1707.78 and 209.03 t, respectively, with relative errors of −45.36% and 13.07%, respectively. Most importantly, the developed framework can scientifically represent the generation–migration–transmission process of agricultural nonpoint source pollutions in each grid at both the watershed and administrative scales.

Exchange Rate Pass-Through, Monetary Policy, and Real Exchange Rates: Iceland and the 2008 Crisis

We use detailed data for Iceland to examine two often-neglected aspects of the exchange rate pass-through problem. First, we investigate whether the pass-through coefficient varies with the degree of international tradability of goods. Second, we analyze if the pass-through coefficient depends on the monetary policy framework. We consider 12 disaggregated price indexes in Iceland for 2003–2019, a period that includes Iceland’s banking and currency crisis of 2008. We find that the pass-through declined around the time Iceland reformed its flexible inflation targeting, and that the coefficients are significantly higher for tradable than for nontradables.

Farm wage and Rice Price dynamics in Bangladesh

Empirical findings explaining the wage-price nexus in Bangladesh are diverse and conflicting. A proper understanding of the relationship between food prices and farm wages is essential for planning policies in support of the wellbeing and food security of the rural poor. In exploring the link between food prices and rising agricultural wages, this study analyzes the dynamic relations between those two by using monthly data from 1994 to 2014. A standard vector error correction model (VECM) is implemented to determine the short-run and long-run relationships between wages and food prices in eight divisions in Bangladesh. In addition, we use autoregressive distributed lag (ARDL) models to estimate the pass-through coefficients and to compare the short-run effects of rice price and urban wage shocks on agricultural wages. We find statistical evidence for a structural break between January 2007 and January 2009 in the relationships of the variables in all divisions. Different to the period until 2007/2009, after the structural break, in six out of eight divisions, rice price shocks do not transmit to the farm wages in the short-run. Moreover, our findings show that in the long-run food prices have become less influential in explaining the changes in farm wages while the influence of urban wages has become stronger in some divisions.

Exchange Rate Pass-Through, Monetary Policy, and Real Exchange Rates: Iceland and the 2008 Crisis

We use detailed data for Iceland to examine two often-neglected aspects of the “exchange rate pass-through” problem. First, we investigate whether the pass-through coefficient varies with the degree of “international tradability” of goods. Second, we analyze if the pass-through coefficient depends on the monetary policy framework. We consider 12 disaggregated price indexes in Iceland for 2003-2019, a period that includes Iceland’s banking and currency crisis of 2008. We find that the pass-through declined around the time Iceland reformed its “flexible inflation targeting,” and that the coefficients are significantly higher for tradable than for nontradable goods.

TRANSMISSÃO DA VARIAÇÃO DA TAXA DE CÂMBIO PARA OS PREÇOS DE EXPORTAÇÕES BRASILEIRAS DA CARNE BOVINA E DA CARNE DE FRANGO (1997-2019)

The objective of this work consisted of examining the relation between exchange rates in the Brazilian export prices of beef and chicken meat, relation defined as the pass-through of the exchange rate, having as reference the period from July, 1997 to March, 2019. The data were collected from the sites of Center for Advanced Studies in Applied Economics – CEPEA, the Institute of Applied Economics - IPEA, in WORLD BANK, and in the Bureau of Labor Statistics – BLS. In this sense, time series instrumentals were used, especially the Error Correction Vector Model. The results found indicated that the pass-through degree of the exchange rate for the export prices of beef occurred in a complete way, representing competitiveness. Yet, for chicken meat, the pass-through coefficient was incomplete, representing that the exchange rate depreciations do not translate themselves into significant gains in competitiveness, once that they reduce partially the export prices.

Asymmetric Exchange Rate Pass-Through to Import and Export Prices for Turkey: A Nonlinear Autoregressive Distributed Lag (NARDL) Approach

This paper re-examines the exchange rate pass-through into trade prices in Turkey to observe possible asymmetries. This exercise is done using a Nonlinear Autoregressive Distributed Lag (NARDL) model. We provide empirical evidence that the impact of exchange rate into import and export prices are asymmetric, meaning that the export and import prices respond differently to a change in exchange rate depending on the direction. Moreover, we observe that the pass-through coefficients decline after Turkey adopts floating exchange rate regime. This result has important implications in terms of monetary policy.

China’s impact on pass-through to US import prices

PurposeThis paper aims to analyze the marked decline in exchange rate pass-through to US import prices in the early 2000s focusing on the increased role of China as a trade partner. In particular, the research focuses on the impact of an exporter with a fixed exchange rate having large market shares of a particular importing country.Design/methodology/approachThe study uses highly disaggregated US import data and rolling regressions to calculate quarterly pass-through estimates for specific goods from every exporter. This leads to a total of over 1.7 million pass-through coefficients. The second stage compares these pass-through coefficients with China’s share of US import market for that particular good and time.FindingsThe paper shows that as China’s market share for specific goods grows, pass-through rates of imports from other countries falls. Pass-through rates remain relatively stable for goods that China does not export to the USA or goods for which China’s share of US imports stays constant. This relationship is stronger when the dollar decreases in value, further suggesting that pressure from China forces competitors to maintain stable prices.Originality/valueThis paper is unique in its use of highly disaggregated data on US imports. While many analyses of exchange rate pass-through focus on overall levels or general goods, this work uses import data at the 10-digit HTS code level. Therefore, the findings are more detailed in showing how China’s increased presence in the US market influences prices of imports from other countries.

Loom of Symmetric Pass-Through

This paper analyzes the effects of the real policy interest rate on the banking sector lending rate, the deposit rate, real stock prices, and the real exchange rate using the Engle Granger cointegration method (EG), the vector error-correction model (VECM), and the nonlinear vector error-correction model (NVECM) with monthly Turkish data over the period January 2002–April 2018. (1) EG results indicate bivariate cointegration relationships between the real interest rate, lending rates, and the deposit rate. The real interest rate increases all lending rates, mainly the housing rate. However, the long-run coefficient for the real exchange rate is not statistically significant. The pass-through is higher for the deposit rate than for lending rates. Moreoever, real stock prices shrink substantially where the finance sector has been affected the most. (2) VECM results indicate a cointegration relationship between all the variables except for the real exchange rate, which has a statistically non-significant pass-through coefficient. The real interest rate has a noteworthy long-run positive effect on the housing loans lending rate compared to others. The affirmative effect on real stock prices is the highest for the technology sector. The short-run effect of the real interest rate on lending rates, real stock prices and the real exchange rate are statistically non-significant except for the overall stock price index, and the vehicle loans lending rate which has a higher coefficient than the deposit rate. (3) NVECM results allow testing of eleven hypotheses and highlight the symmetric relationship and the valid pass-through effect, and reject the strong exogeneity assumption for all variables.

Cost pass-through to higher ethanol blends at the pump: Evidence from Minnesota gas station data

We examine the pass-through of wholesale prices to retail prices in the market for E85, which contains 51%–83% ethanol, and in the much larger market for E10, which contains 10% ethanol. We use a panel dataset consisting of monthly observations from 2007 to March 2015 on wholesale and retail prices for 274 Minnesota gas stations that sell both E10 and E85. Consistent with prior research, the cumulative pass-through coefficient for E10 is 1.00 after one month. In contrast, the E85 market is sparse, and although pass-through increased over time, we estimate it to be only 0.53 statewide from 2012 to 2015. Pass-through is higher at stations with more local E85 competitors. In the Twin Cities, which has a high density of E85 stations, pass-through is nearly complete, but outside the Twin Cities slightly less than half the wholesale discount of E85, relative to E10, is passed on to the consumer.

Efectos del traspaso inflacionario del tipo de cambio a la inflación: Canadá, Estados Unidos y México, 1990-2015

Analizamos el traspaso de los movimientos del tipo de cambio a la inflación (pass-through) para las economías del Tratado de Libre Comercio de América del Norte (TLCAN). En la estimación econométrica exploramos empíricamente las relaciones de causalidad entre la tasa de interés y el tipo de cambio de Canadá, Estados Unidos y México, así como el papel del tipo de cambio en el marco de política monetaria de metas de inflación (PMMI) de las tres economías. Nuestros resultados revelan que en Canadá y Estados Unidos de América el efecto de traspaso inflacionario es irrelevante, mientras que en México ha disminuido, aunque aún es significativo.

Adopción de esquemas de metas de inflación y el traspaso de tipo de cambio: evidencia para República Dominicana

El siguiente trabajo presenta un análisis de la incidencia de la depreciación cambiaria en los precios de las importaciones y los precios generales. Lo anterior se logra a través de la estimación del Efecto Traspaso o Pass-Through de Tipo de Cambio mediante el uso de mínimos cuadrados ordinarios. El objetivo de nuestra investigación es verificar si ha habido un cambio en el Pass-Through a partir de la adopción del esquema de metas de inflación en el 2012. De acuerdo con nuestros resultados, existe evidencia que luego de la adopción de dicho esquema por el Banco Central de la República Dominicana ha disminuido el efecto traspaso de largo plazo. Esta disminución se debe al efecto indirecto de la menor inercia inflacionaria –propia del anclaje de las expectativas inflacionarias de los agentes económicos–. Este resultado es congruente con gran parte de la literatura que evidencia una disminución del efecto traspaso por un entorno estable y con baja inflación.

Monetary Policy Transmission in the Eastern Caribbean Currency Union

This paper empirically investigates international and domestic monetary policy transmission mechanisms in the Eastern Caribbean Currency Union (ECCU). We assess interest rate pass-through of both the U.S. policy rate and the ECCU minimum saving deposit rate (MSR) into domestic interest rates through the interest rate channel. While economic theory suggests that the international pass-through should be high in small open economies with fixed exchange rates and open capital accounts, our findings, based on regression analysis, point to a low long-run pass-through coefficient of the U.S. interest rate. The domestic transmission channel, however, is found to operate through changes in the MSR. The results hold for different interest rates (deposit and lending) and are supported by survey-based findings.

Monetary Policy Transmission in the Eastern Caribbean Currency Union

This paper empirically investigates international and domestic monetary policy transmission mechanisms in the Eastern Caribbean Currency Union (ECCU). We assess interest rate pass-through of both the U.S. policy rate and the ECCU minimum saving deposit rate (MSR) into domestic interest rates through the interest rate channel. While economic theory suggests that the international pass-through should be high in small open economies with fixed exchange rates and open capital accounts, our findings, based on regression analysis, point to a low long-run pass-through coefficient of the U.S. interest rate. The domestic transmission channel, however, is found to operate through changes in the MSR. The results hold for different interest rates (deposit and lending) and are supported by survey-based findings.

Interest rate pass-through: a nonlinear vector error-correction approach

Abstract This paper analyzes pass-through from money market rates to consumer retail loan and deposit rates in Canada from 1983 to 2015 using a nonlinear vector error-correction model. This model permits estimation of long-run pass-through coefficients while simultaneously accounting for asymmetric adjustments and short-run dynamics. In contrast to empirical frameworks used in previous studies, it also allows testing of commonly made assumptions such as exogeneity of the market rate, making inference more robust. I find that pass-through was complete for all rates before the financial crisis although only after the mid 1990s for the 1 year mortgage rate. Since the end of the 2008–2009 recession, pass-through remains complete in the mortgage market but has significantly declined for deposit rates. Furthermore, many rates adjust asymmetrically but the direction of rigidity differs among rates and time periods.

Australian Bank Mortgage Price-Setting Behaviour Pre- and Post-GFC: Does International Funding Cost Matter?

This study is motivated by an ongoing controversy over banks’ interest rate setting conduct in the Australian mortgage market. We examine heterogeneity in the response of variable interest rates on owner-occupied housing loans to the ‘cost of funds’ rates, including the cash rate and the cost of overseas borrowing. The stability of the pass-through mechanism in the post-crisis period is further evaluated in comparison with the pre-crisis epoch. Our results highlight that Australian banks set their mortgage interest rates on funding costs. We also confirm a declining transmission of the cash rate after the GFC consistent with previous studies. Importantly, the close alignment of mortgage rates and international funding cost exists before and after the crisis. Banks partially transmit changes in the cost of offshore funding to their home-loan rates in both short and long term. Short-term pass-through coefficients of the offshore funding cost are heterogeneous, while the long-term traverses are fairly homogeneous. The fuller sizes of these long-term coefficients in the post-crisis subsample signify that Australian banks’ mortgage price-setting practices have been relatively stable after the crisis.

Exchange rate pass-through and inflation targets in Chile

Using quarterly data on the Chilean economy from 1986 to 2009, this article looks at the effect of gradual implementation of an inflation-targeting regime on exchange rate pass-through to prices. Initially, the introduction of inflation-targeting contributes to substantial reductions in the pass-through coefficient. However, in the second phase of implementation, once the monetary authority extends the policy horizon and introduces greater flexibility into the exchange rate system, the pass-through coefficient rises sharply. The findings of this study show that exchange rate pass-through to prices, in addition to being sensitive to the inflationary environment, is closely tied to the rules of the game that shape the monetary policy framework.

State-dependent exchange rate pass-through behavior

We estimate a Bayesian threshold vector autoregression (TVAR) to study the relationship between exchange rate pass-through and economic activity in Canada and Mexico. Both the model comparison and the analysis of impulse–response functions provide strong evidence of a nonlinear relationship and suggest that the exchange rate pass-through is dependent on the state of the economy. In particular, the pass-through coefficient is higher when the growth rate of output is large, and this difference is statistically significant across regimes for both countries. Furthermore, the results show that the degree of pass-through is complete in the case of import prices and that it falls along the distribution chain of goods.

The Role of the Business Cycle in Exchange Rate Pass-Through: The Case of Finland

In this paper we investigate whether exchange rate pass-through (ERPT) responds nonlinearly to economic activity along the business cycle. Using quarterly data spanning the period 1975:1 to 2011:1, we explore the existence of nonlinearities in ERPT to CPI inflation for the Finnish economy. Within a logistic smooth transition framework, our investigations reveal a strong regime-dependence of pass-through, depending positively on economic activity. Besides, point estimates indicate that the long-run pass-through coefficient is equal to 0.15 % (weakly significant) when GDP growth is below a threshold of 3 %. However, when the Finnish economy’s growth rate speeds up—above the threshold of 3 %—ERPT elasticity increases to 0.47 %. These results provide some useful guidance on how policymakers should act over different phases of the business cycle. More specifically, monetary policy should factor in the nonlinear mechanism of ERPT over the business cycle in order to prevent exchange rate movements from fueling a continuous inflationary process.

The Role of the Business Cycle in Exchange Rate Pass-Through: The Case of Finland

In this paper we investigate whether exchange rate pass-through (ERPT) responds nonlinearly to economic activity along the business cycle. Using quarterly data spanning the period 1975:1 to 2011:1, we explore the existence of nonlinearities in ERPT to CPI inflation for the Finnish economy. Within a logistic smooth transition framework, our investigations reveal a strong regime-dependence of pass-through, depending positively on economic activity. Besides, point estimates indicate that the long-run pass-through coefficient is equal to 0.15 % (weakly significant) when GDP growth is below a threshold of 3 %. However, when the Finnish economy’s growth rate speeds up—above the threshold of 3 %—ERPT elasticity increases to 0.47 %. These results provide some useful guidance on how policymakers should act over different phases of the business cycle. More specifically, monetary policy should factor in the nonlinear mechanism of ERPT over the business cycle in order to prevent exchange rate movements from fueling a continuous inflationary process.

Exchange Rate Pass-Through into China’s Import Prices: An Empirical Analysis Based on ARDL Model

This study analyzes the exchange rate pass-through into China aggregate import prices and prices of eleven industries under the HS classification. Chinese monthly data from July 2005 to July 2015 are used. Bounds test finds that all industries have co-integration relationship, with the exception of footwear and headgear products (HS12) and transport equipment (HS17). We have researched the short- and long-run pass-through to China import prices with ARDL model and the estimated results are as follows: the degree of exchange rate pass-through to China’s aggregate import prices is very high; both the short- and long-run coefficients for various industries are fairly different; the pass-through coefficient is high in industries of basic metals and metal products, chemical products, pulp and paper products, plastic and rubber products; the degree of pass-through is comparatively low in industries of textiles products, raw hides, leather and furs products, wood and wooden products and non-metallic mineral products; the pass-through into import prices for industries of machinery and equipment (HS16) is incomplete.