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The Phenomenon of Incomplete Exchange Rate Pass-Through to Prices in the Euro Area

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  • Piotr MISZTAL

    () (The Radom Technical University, Economics Department)

Abstract

The main aim of the article is to present the influence of exchange rate fluctuations on the price dynamic in the Euro Area. The knowledge concerning the level of exchange rate pass-through to prices allows assessing how exchange rates affect on inflation and monetary policy in given states. The article consists of two parts. The first component deals with theoretical analysis of the phenomenon of incomplete exchange rate pass-through to prices, including reasons and factors determining the range of this phenomenon. In the next part of article, there is analyzed the range of exchange rate pass-through to prices in the Euro Area by using the Vector Autoregression Model (VAR). There are estimated coefficients of exchange rate pass-through to import, producer and consumer prices on the base of impulse response function. Then, there is made decomposition of the price index variance in order to assess the degree of price determination by exchange rate changes.

Suggested Citation

  • Piotr MISZTAL, 2010. "The Phenomenon of Incomplete Exchange Rate Pass-Through to Prices in the Euro Area," EuroEconomica, Danubius University of Galati, issue 24, pages 36-47, March.
  • Handle: RePEc:dug:journl:y:2010:i:24:p:36-47
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    File URL: http://journals.univ-danubius.ro/index.php/euroeconomica/article/view/264/247
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    References listed on IDEAS

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    1. Lian An & Jian Wang, 2012. "Exchange Rate Pass-Through: Evidence Based on Vector Autoregression with Sign Restrictions," Open Economies Review, Springer, vol. 23(2), pages 359-380, April.
    2. Campa, Jose M. & Goldberg, Linda S. & Gonzalez-Minguez, Jose M., 2005. "Exchange-rate pass-through to import prices in the euro area," IESE Research Papers D/609, IESE Business School.
    3. Taylor, John B., 2000. "Low inflation, pass-through, and the pricing power of firms," European Economic Review, Elsevier, vol. 44(7), pages 1389-1408, June.
    4. Anderton, Robert, 2003. "Extra-euro area manufacturing import prices and exchange rate pass-through," Working Paper Series 219, European Central Bank.
    5. Giovanni P. Olivei, 2002. "Exchange rates and the prices of manufacturing products imported into the United States," New England Economic Review, Federal Reserve Bank of Boston, issue Q 1, pages 3-18.
    6. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    7. Steve Ambler & Ali Dib & Nooman Rebei, 2003. "Nominal Rigidities and Exchange Rate Pass-Through in a Structural Model of a Small Open Economy," Staff Working Papers 03-29, Bank of Canada.
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    Keywords

    Exchange rate; VAR model; inflation;

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