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Exchange Rate Pass-through: The Role of Regime Changes

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  • Douglas Steel
  • Alan King
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    Abstract

    We consider the effect on the degree of exchange rate pass-through of the exchange rate regime in operation. We test the hypothesis that pass-through will be lower under a float as firms may be reluctant to pass appreciations or depreciations on to their customers when there is a strong chance that they will be subsequently reversed. Taylor's hypothesis that pass-through will be lower in a low-inflation environment is also considered. Both hypotheses are assessed in relation to the price of manufactured imports into New Zealand and we find that, whereas the shift to a float dramatically lowered the degree of pass-through, the later shift to a low-inflation regime has no significant additional effect on the pass-through relationship.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/0269217042000227114
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal International Review of Applied Economics.

    Volume (Year): 18 (2004)
    Issue (Month): 3 ()
    Pages: 301-322

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    Handle: RePEc:taf:irapec:v:18:y:2004:i:3:p:301-322

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    Related research

    Keywords: Exchange rate pass-through; inflation; exchange rate regime;

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    Cited by:
    1. Sushanta Mallick & Helena Marques, 2007. "Pass-through of Exchange Rate and Tariffs into Import Prices of India: Currency Depreciation versus Import Liberalisation," Working Papers 3, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
    2. Andrés González & Hernán Rincón & Norberto Rodríguez, . "La transmisión de los choques a la tasa de cambio sobre la inflación de los bienes importados en presencia de asimetrías," Borradores de Economia 532, Banco de la Republica de Colombia.
    3. Hernán Rincón & Édgar Caicedo & Norberto Rodríguez, 2007. "Exchange Rate Pass-Through Effects:A Disaggregate Analysis Of Colombianimports Of Manufactured Goods," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE.
    4. repec:ltr:wpaper:1994.08 is not listed on IDEAS
    5. Nogueira Jr., Reginaldo P. & León-Ledesma, Miguel A., 2009. "Fear of Floating in Brazil: Did Inflation Targeting matter?," The North American Journal of Economics and Finance, Elsevier, vol. 20(3), pages 255-266, December.
    6. Lin, Po-Chun & Wu, Chung-Shu, 2012. "Exchange rate pass-through in deflation: The case of Taiwan," International Review of Economics & Finance, Elsevier, vol. 22(1), pages 101-111.
    7. Hakan Kara & Hande Kucuk Tuger & Umit Ozlale & Burc Tuger & Devrim Yavuz & Eray M. Yucel, 2005. "Exchange Rate Pass-Through in Turkey : Has it Changed and to What Extent?," Working Papers 0504, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    8. Athukorala, Premachandra & Menon, Jayant, 1995. "Exchange Rates and Strategic Pricing: The Case of Swedish Machinery Exports," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 57(4), pages 533-46, November.
    9. Andrés González & Hernán Rincóm & Norberto Rodríguez, 2008. "La transmisión de los choques a la tasa de cambio sobre la inflación," BORRADORES DE ECONOMIA 005089, BANCO DE LA REPÚBLICA.
    10. Athukorala, Premachandra & Menon, Jayant, 1994. "Pricing to Market Behaviour and Exchange Rate Pass-Through in Japanese Exports," Economic Journal, Royal Economic Society, vol. 104(423), pages 271-81, March.
    11. María-Dolores, Ramón, 2010. "Exchange rate pass-through in New Member States and candidate countries of the EU," International Review of Economics & Finance, Elsevier, vol. 19(1), pages 23-35, January.

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