EXCHANGE RATE PASS-THROUGH UNDER MODEL UNCERTAINTY

This paper examines exchange rate pass-through under model uncertainty. In the paper covering the period between 2003 and 2013, the pass-through is analysed using a VAR framework which incorporates pricing along a distribution chain. When we consider alternative VAR models, we find that the estimated pass-through coefficients are between 4-8 percent. These results indicate a model uncertainty in the estimation of pass-through coefficient. We use a Bayesian model averaging method to take the model uncertainty into account and find that the pass through coefficient is 7.5 percent.