Moving out of the linear rut: A period-specific and regime-dependent exchange rate and oil price pass-through in the BRICS countries

Abstract

In this paper, we test for the period-specific and regime-dependent exchange rate and oil price pass-through (EROPPT) for the BRICS countries using monthly frequency data. To this end, we extend the Diebold-Yilmaz (DY) spillover index to nonlinear settings based on the vector smooth transition autoregressive (STVAR) model. The results suggest that changes in the exchange rate and oil price of different magnitudes have asymmet-ric effects between the lower and upper regimes of the period-specific and regime-dependent pass-through. The results further show that the pass-through effects are stronger during periods the BRICS economies have completely adjusted to a specific regime than periods in which the economies only partially adjusted. Further-more, our findings show considerable evidence of a higher pass-through when nonlinearity is captured. Overall, these findings provide macroeconomic insights for the monetary policymakers. (c) 2021 Elsevier B.V. All rights reserved.