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Market Entries and Exits and the Nonlinear Behaviour of the Exchange Rate Pass-Through into Import Prices

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  • Nils Herger

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Abstract

This paper develops an empirical framework giving rise to a nonlinear behaviour of the exchange rate pass-through (ERPT). Rather than shifts between low and high inflation, the nonlinearity arises when large swings in the exchange rate trigger market entries and exits of foreign firms. Switching regressions are used to distinguish between low and high pass-through regimes of the exchange rate into import prices. For the case of Switzerland, the corresponding results suggest that, though inflation has been low and stable, the ERPT still doubles in value in times of a rapid appreciation of the Swiss Franc. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Nils Herger, 2015. "Market Entries and Exits and the Nonlinear Behaviour of the Exchange Rate Pass-Through into Import Prices," Open Economies Review, Springer, vol. 26(2), pages 313-332, April.
  • Handle: RePEc:kap:openec:v:26:y:2015:i:2:p:313-332
    DOI: 10.1007/s11079-014-9331-y
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    References listed on IDEAS

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    More about this item

    Keywords

    Exchange rate pass-through; Import prices; Switching regression; F15; F31; L11;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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