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Asymmetric effects of the exchange rate on domestic corporate goods prices

  • Murase, Koichi
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    This paper empirically examines whether there are asymmetric effects of the exchange rate on domestic corporate goods prices when the exchange rate is more volatile. To identify different volatilities in the exchange rate, we employ a threshold regression model. In other words, we define exchange rate volatility as a threshold variable. By using monthly data from Japan, we estimate a threshold parameter and calculate its confidence interval by following Hansen (2000). The results substantiate that the degree of exchange rate pass-through to the aggregated corporate goods price index is higher and more gradually adjusted in a higher exchange rate volatility regime. Furthermore, such asymmetric relationships are clearly found in three disaggregated corporate goods prices: petroleum and coal products, nonferrous metals, and chemicals and related products.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0922142513000078
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    Article provided by Elsevier in its journal Japan and the World Economy.

    Volume (Year): 25-26 (2013)
    Issue (Month): ()
    Pages: 80-89

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    Handle: RePEc:eee:japwor:v:25-26:y:2013:i::p:80-89
    DOI: 10.1016/j.japwor.2013.01.006
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505557

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    1. Mototsugu Shintani & Akiko Terada-Hagiwara & Tomoyoshi Yabu, 2012. "Exchange rate pass-through and inflation: a nonlinear time series analysis," Vanderbilt University Department of Economics Working Papers 12-00008, Vanderbilt University Department of Economics.
    2. Hamid Faruqee & Dalia S Hakura & Ehsan U. Choudhri, 2002. "Explaining the Exchange Rate Pass-Through in Different Prices," IMF Working Papers 02/224, International Monetary Fund.
    3. Galí, Jordi & Monacelli, Tommaso, 2002. "Monetary Policy and Exchange Rate Volatility in a Small Open Economy," CEPR Discussion Papers 3346, C.E.P.R. Discussion Papers.
    4. Hooker, Mark A, 2002. "Are Oil Shocks Inflationary? Asymmetric and Nonlinear Specifications versus Changes in Regime," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(2), pages 540-61, May.
    5. Obstfeld, Maurice & Rogoff, Kenneth, 1995. "Exchange Rate Dynamics Redux," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 624-60, June.
    6. Lindé, Jesper & Nessen, Marianne & Söderström, Ulf, 2004. "Monetary Policy in an Estimated Open-Economy Model with Imperfect Pass-Through," CEPR Discussion Papers 4531, C.E.P.R. Discussion Papers.
    7. Betts, Caroline & Devereux, Michael B., 2000. "Exchange rate dynamics in a model of pricing-to-market," Journal of International Economics, Elsevier, vol. 50(1), pages 215-244, February.
    8. Virgiliu Midrigan, 2005. "International Price Dispersion in State-Dependent Pricing Models," International Finance 0511001, EconWPA.
    9. Campa, José Manuel & Goldberg, Linda S., 2004. "Exchange Rate Pass-Through into Import Prices," CEPR Discussion Papers 4391, C.E.P.R. Discussion Papers.
    10. Frank Smets & Raf Wouters, 2002. "Openness, imperfect exchange rate pass-through and monetary policy," Working Paper Research 19, National Bank of Belgium.
    11. 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.
    12. Jess Benhabib & Mark M. Spiegel, 2006. "Moderate inflation and the deflation-depression link," Working Paper Series 2006-32, Federal Reserve Bank of San Francisco.
    13. Miyao, Ryuzo, 2002. "The Effects of Monetary Policy in Japan," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(2), pages 376-92, May.
    14. Bouakez, Hafedh & Rebei, Nooman, 2008. "Has exchange rate pass-through really declined? Evidence from Canada," Journal of International Economics, Elsevier, vol. 75(2), pages 249-267, July.
    15. Bruce E. Hansen, 2000. "Sample Splitting and Threshold Estimation," Econometrica, Econometric Society, vol. 68(3), pages 575-604, May.
    16. Otani, Akira & Shiratsuka, Shigenori & Shirota, Toyoichiro, 2003. "The Decline in the Exchange Rate Pass-Through: Evidence from Japanese Import Prices," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 21(3), pages 53-81, October.
    17. Julio J. Rotemberg, 1982. "Monopolistic Price Adjustment and Aggregate Output," Review of Economic Studies, Oxford University Press, vol. 49(4), pages 517-531.
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