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Asymmetry of the Exchange Rate Pass-Through

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  • Jan Przystupa
  • Ewa Wróbel

Abstract

We propose a complex analysis of the exchange rate pass-through in an open economy. We assess the level, linearity, and symmetry of exchange rate pass-through to import and consumer prices in Poland and discuss their implications for monetary policy. We show that the pass-through is incomplete, even in the long run. There is pricing to market behavior in both the long and short runs. We do not find strong evidence of nonlinearity in import prices' reaction to the exchange rate and reject the hypothesis of an asymmetric response to appreciations and depreciations. On the other hand, we find an asymmetry of consumer price index responses to the output gap, direction and size of exchange rate changes, and magnitude of exchange rate volatility. The asymmetry is mostly visible after exogenous shocks. We reject the hypothesis of an asymmetric reaction of prices in a high- and low-inflation environment.

Suggested Citation

  • Jan Przystupa & Ewa Wróbel, 2011. "Asymmetry of the Exchange Rate Pass-Through," Eastern European Economics, Taylor & Francis Journals, vol. 49(1), pages 30-51, January.
    • Handle: RePEc:mes:eaeuec:v:49:y:2011:i:1:p:30-51
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    Citations

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    Cited by:

    1. Rucha R. Ranadive & L.G. Burange, 2015. "Transmission Mechanism of Exchange Rate Pass-through in India," Foreign Trade Review, , vol. 50(4), pages 263-283, November.
    2. Nidhaleddine Ben Cheikh, 2012. "Non-linearities in exchange rate pass-through: Evidence from smooth transition models," Economics Bulletin, AccessEcon, vol. 32(3), pages 2530-2545.
    3. Umar Bala & Patchaya Songsiengchai & Lee Chin, 2017. "Asymmetric behavior of exchange rate pass-through in Thailand," Economics Bulletin, AccessEcon, vol. 37(2), pages 1289-1297.
    4. Mohammadi Khyareh , Mohsen, 2017. "Asymmetric Effects of Exchange Rate Changes in Iran," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 12(3), pages 317-344, July.
    5. Szafranek, Karol, 2017. "Flattening of the New Keynesian Phillips curve: Evidence for an emerging, small open economy," Economic Modelling, Elsevier, vol. 63(C), pages 334-348.
    6. Anderl, Christina & Caporale, Guglielmo Maria, 2023. "Nonlinearities in the exchange rate pass-through: The role of inflation expectations," International Economics, Elsevier, vol. 173(C), pages 86-101.
    7. Raphael Brun-Aguerre & Ana-Maria Fuertes & Matthew Greenwood-Nimmo, 2017. "Heads I win; tails you lose: asymmetry in exchange rate pass-through into import prices," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 180(2), pages 587-612, February.
    8. Roberta Colavecchio & Ieva Rubene, 2019. "Non-linear exchange rate pass-through to euro area inflation: A local projection approach," BCL working papers 138, Central Bank of Luxembourg.
    9. Fandamu, Humphrey & Ndulo, Manenga & Fandamu, Mercy, 2021. "Globalization and Exchange Rate Pass Through: Evidence from Zambia," African Journal of Economic Review, African Journal of Economic Review, vol. 9(4), September.
    10. Abdul Jalil, 2020. "What Do We Know of Exchange Rate Pass Through?," PIDE Knowledge Brief 2020:5, Pakistan Institute of Development Economics.
    11. Zhu, Huiming & Chen, Xiuyun, 2019. "Asymmetric effects of oil prices and exchange rates on China’s industrial prices," Energy Economics, Elsevier, vol. 84(C).
    12. Sznajderska, Anna, 2014. "Asymmetric effects in the Polish monetary policy rule," Economic Modelling, Elsevier, vol. 36(C), pages 547-556.
    13. Carlos Brenes Soto & Manfred Esquivel Monge, 2018. "Asymmetries of the Exchange Rate Pass-through to Domestic Prices in Costa Rica during the Exchange Rate Flexibility Period," Monetaria, Centro de Estudios Monetarios Latinoamericanos, CEMLA, vol. 0(1), pages 1-35, january-j.
    14. Tomasz Chmielewski & Mariusz Kapuściński & Andrzej Kocięcki & Tomasz Łyziak & Jan Przystupa & Ewa Stanisławska & Ewa Wróbel, 2018. "Monetary transmission mechanism in Poland. What do we know in 2017?," NBP Working Papers 286, Narodowy Bank Polski.
    15. Tunç, Cengiz, 2017. "A Survey on Exchange Rate Pass through in Emerging Markets," Bulletin of Economic Theory and Analysis, BETA Journals, vol. 2(3), pages 205-233, July-Sept.
    16. Antonia Arsova, 2021. "Exchange rate pass-through to import prices in Europe: a panel cointegration approach," Empirical Economics, Springer, vol. 61(1), pages 61-100, July.
    17. Nidhaleddine Ben Cheikh & Younes Ben Zaied & Pascal Nguyen, 2018. "Nonlinear Exchange Rate Transmission in the Euro Area: A Multivariate Smooth Transition Regression Approach," Economics Bulletin, AccessEcon, vol. 38(3), pages 1590-1602.
    18. Konopczak, Karolina, 2019. "Can inaction account for the incomplete exchangerate pass-through? Evidence from threshold ARDL model," MF Working Papers 37, Ministry of Finance in Poland.

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