Aggregate Exchange Rate Pass-Through

Aggregate Exchange Rate Pass-Through: Instability and Inference

The instability displayed by aggregate, econometric specifications of pass-through has been cited as evidence in favor of theoretical models of pass-through that allow for hysteresis. This paper argues that 1) An unstable econometric specification should not be used as evidence in favor of a theoretical model, and 2) Aggregate models of pass-through are very uninformative, given the different market structures that are likely to be aggregated.

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