Exchange Rate Pass-Through Under the Consideration of Raw Materials Prices：Re-examination of Asymmetric Price Change
Date Issued
2015
Date
2015
Author(s)
Li, Chun-Ping
Abstract
The purpose of this paper is to discuss whether exchange rate pass-through and the fluctuations of raw materials prices will cause asymmetric effect on changes of consumer price. Price stability has been the most important policy issue of the government administration. When foreign raw materials prices change violently , they will naturally affect the stability of domestic consumer prices. Therefore, in addition to maintaining the stability of exchange rates, concerning changes of raw materials prices (such as crude oil, steel, agriculture crops, etc.) is also an important issue of the government administration . First of all, we set up an import price model by following the Law of One Price to analyze the relationship between changes of import prices and exchange rate,income,oil price (or other raw materials prices) ,etc. Then we identify structural shocks (such as the exchange rates shocks, oil price shocks and other raw materials prices shocks, etc.) by using structural vector autoregression (SVAR) model to analyze different impacts on changes of consumer price after separating the appreciation and depreciation from exchange rate shocks, oil price shocks and other raw materials prices shocks. The empirical results indicate the causal factor of asymmetrical changes on Taiwan''s consumer prices is caused by oil price volatility.
Subjects
Exchange rate pass-through
Raw materials prices
Asymmetric effect
Oil price
Import price
Structural vector autoregression , SVAR
Structural shocks
Type
thesis