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Re-examining the time-varying nature and determinants of exchange rate pass-through into import prices

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  • Chou, K.W.

Abstract

Numerous studies have focused on the time-varying nature of exchange rate pass-through (ERPT) into import prices and investigated the possible reasons for controlling its changes. Unlike the numerous previous studies, we used the quantile regression method to obtain the time-varying ERPTs of 16 OECD countries. In general, the ERPTs before 1990s were relatively higher than the conditional mean estimate and relatively lower in later years. Panel regression analysis indicated that time-varying ERPTs are significantly and positively correlated with inflation rate/inflation volatility and significantly and negatively correlated with exchange rate volatility, output gap, and degree of trade openness. We also showed that ERPT responses insignificantly to inflation rate in the deflation environment. Moreover, ERPT responses to exchange rate depreciation and appreciation will differ depending on the scale of the exchange rate changes. This is potentially because the ERPT behavior of firms are primarily linked to the market competition that they face.

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  • Chou, K.W., 2019. "Re-examining the time-varying nature and determinants of exchange rate pass-through into import prices," The North American Journal of Economics and Finance, Elsevier, vol. 49(C), pages 331-351.
    • Handle: RePEc:eee:ecofin:v:49:y:2019:i:c:p:331-351
    DOI: 10.1016/j.najef.2019.04.022
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    Cited by:

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    More about this item

    Keywords

    Exchange rate pass-through; Import prices; Quantile regression; Nonlinearity; Panel regression;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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