Pass-through with volatile exchange rates and inflation targeting

Abstract As central banks struggle against high inflation in the aftermath of Covid-19 pandemic and war Ukraine, it is essential to understand open economy aspects determination. Using a Bayesian VAR with time-varying parameters stochastic volatility, we analyze behavior pass-through across time relation macroeconomic variables. Pass-through increases size volatility exchange rate level, variance persistence shocks domestic prices, which line theory. The associated higher only for observations low inflation. Furthermore, effect on much appreciations than depreciations.