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Exchange rates and import prices for a small open economy: the case of Ireland

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  • Geoff Kenny
  • Donal Mcgettigan

Abstract

As a further contribution to the growing international literature on exchange rate pass-through (PT), this study assesses the extent of PT for Irish import prices over the period 1963 to 1995. It fills two important gaps in the literature, by making due allowance for the time series properties of the data and by concentrating on the case of a small open economy. In order to assess the extent of PT a mark-up model for aggregate import unit values is employed. It is argued that the usual single equation mark-up estimation technique leads to seriously biased and inefficient estimates of the degree of PT, as it ignores the strong simultaneity of import prices and domestic competing prices. This study makes use of the Johansen technique to allow for such simultaneity and uncovers two long-run equilibrium relationships among the data, for import unit values and domestic competing prices, and confirms the existence of very close to full PT for both. Previous results in the literature demonstrating substantially less than full PT may be due to the failure to make proper allowance for the time series properties of the data or for the strong simultaneity which exists between import and domestic competing prices.

Suggested Citation

  • Geoff Kenny & Donal Mcgettigan, 1998. "Exchange rates and import prices for a small open economy: the case of Ireland," Applied Economics, Taylor & Francis Journals, vol. 30(9), pages 1147-1155.
  • Handle: RePEc:taf:applec:v:30:y:1998:i:9:p:1147-1155
    DOI: 10.1080/000368498325048
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    References listed on IDEAS

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    1. William R. Melick, 1990. "Estimating pass-through: structure and stability," International Finance Discussion Papers 387, Board of Governors of the Federal Reserve System (U.S.).
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    Cited by:

    1. Beirne, John & Bijsterbosch, Martin, 2011. "Exchange rate pass-through in central and eastern European EU Member States," Journal of Policy Modeling, Elsevier, vol. 33(2), pages 241-254, March.
    2. Mirdala, Rajmund, 2015. "Exchange Rate Pass-Through in the Euro Area," MPRA Paper 68862, University Library of Munich, Germany.
    3. Peter Rowland, 2003. "Exchange Rate Pass-Throught to Domestic Prices: The Case of Colombia," Borradores de Economia 254, Banco de la Republica de Colombia.
    4. Hahn, Elke, 2003. "Pass-through of external shocks to euro area inflation," Working Paper Series 243, European Central Bank.
    5. Mohamed Abdul Hafez Ghars El-Din & Yousuf Hasan Jawad Mohammad, 2001. "Exchange Rate and Domestic Prices in The GCC Countries," Working Papers 0105, Economic Research Forum, revised 02 Aug 2001.
    6. 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.
    7. Felix P. Hüfner & Michael Schröder, 2003. "Exchange Rate Pass-Through to Consumer Prices: A European Perspective," Aussenwirtschaft, University of St. Gallen, School of Economics and Political Science, Swiss Institute for International Economics and Applied Economics Research, vol. 58(03), pages 383-412, September.
    8. Quinn, Terry & Kenny, Geoff & Meyler, Aidan, 1999. "Inflation Analysis: An Overview," MPRA Paper 11361, University Library of Munich, Germany.
    9. Bijsterbosch, Martin & Beirne, John, 2009. "Exchange Rate Pass-through in Central and Eastern European Member States," Working Paper Series 1120, European Central Bank.
    10. Carmen Astrid Romero, 2012. "El efecto transmisión del tipo de cambio en Colombia durante los años de la industrialización," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE, vol. 30(67), pages 216-251, July.
    11. Bowe, Michael & Saltvedt, Thina M., 2004. "Currency invoicing practices, exchange rate volatility and pricing-to-market: evidence from product level data," International Business Review, Elsevier, vol. 13(3), pages 281-308, June.
    12. Mirdala, Rajmund, 2013. "Exchange Rate Pass-Through to Domestic Prices under Different Exchange Rate Regimes," MPRA Paper 53209, University Library of Munich, Germany.
    13. Andreas Benedictow & Pål Boug, 2013. "Trade liberalisation and exchange rate pass-through: the case of textiles and wearing apparels," Empirical Economics, Springer, vol. 45(2), pages 757-788, October.
    14. Eleanor Doyle, 2004. "Exchange rate pass-through in a small open economy: the Anglo-Irish case," Applied Economics, Taylor & Francis Journals, vol. 36(5), pages 443-455.
    15. Peter Rowland, 2003. "Exchange Rate Pass-Through To Domestic Prices: The Case Of Colombia," BORRADORES DE ECONOMIA 002683, BANCO DE LA REPÚBLICA.

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