Work detail

The Exchange Rate Pass-Through at the Zero Lower Bound: The Evidence from the Czech Republic

Author: Mgr. Ing. Tomáš Šestořád
Year: 2017 - summer
Leaders: PhDr. Jaromír Baxa Ph.D.
Consultants:
Work type: Economic Theory
Masters
Language: English
Pages: 75
Awards and prizes:
Link: https://is.cuni.cz/webapps/zzp/detail/179451/
Abstract: The paper examines the hypothesis that the devaluation of the domestic currency leads to the higher
exchange rate pass-through at the zero lower bound since the interest rate channel cannot offset
effects of the depreciation in that situation. Time-varying vector autoregression with stochastic
volatility is used to identify the development of the pass-through. The hypothesis is tested on the
Czech dataset because the Czech Republic is considered as the prototypical small open economy with
inflation targeting. The assumption of higher pass-through to consumer prices at the zero lower
bound is rejected. Obtained results confirm that the deprecation stimulates output growth slightly
more when the interest rate is close to zero. Our estimations imply that the exchange rate
commitment of the Czech National Bank increased the price level by 0.116 % and contributed to the
output growth by 0.781 %.

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