Exchange Rate Pass-through to Prices: VAR evidence for Chile

Produced by: 
Banco Central de Chile
Available from: 
February 2015
Paper author(s): 
Santiago Justel
Andrés Sansone
Topic: 
Financial Economics
Year: 
2015

This paper investigates the exchange rate pass-through (ERPT) to different price indices in Chile. The analysis is carried out with a vector autoregressive (VAR) model with exogenous variables. Models were estimated using monthly data for Chile from January 1987 to December 2013. Average pass-through ratio to total CPI is estimated to be between 0.1 and 0.2 in the medium term. These results indicate a lower ERPT after the adoption of inflation targeting. Moreover, from 2002 onwards the effect of an exchange rate movement takes around four quarters to pass-through completely, compared to one to two years for the full sample.

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