Asymmetric exchange rate pass-through: Evidence from major countries
AbstractThe aim of this paper is to investigate the asymmetric effect of exchange rate variations on prices over the short- and long-run in four major developed countries. To this end, we estimate a mark-up model for prices using a novel and simple asymmetric cointegrating model, with positive and negative partial sum decomposition of the nominal exchange rates. Our results show that prices react differently to appreciations and depreciations over the long-run, an effect that was previously ignored in the literature. In particular, we provide evidence that depreciations are passed through prices more than appreciations, a result that might suggest weak competition structures. This result has important implications for the proper conduct of monetary policy.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Macroeconomics.
Volume (Year): 34 (2012)
Issue (Month): 3 ()
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Web page: http://www.elsevier.com/locate/inca/622617
Exchange rate pass-through; Inflation; Asymmetry; ARDL;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- F31 - International Economics - - International Finance - - - Foreign Exchange
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