Exchange Rate Pass-through: The Role of Regime Changes
We consider the effect on the degree of exchange rate pass-through of the exchange rate regime in operation. We test the hypothesis that pass-through will be lower under a float as firms may be reluctant to pass appreciations or depreciations on to their customers when there is a strong chance that they will be subsequently reversed. Taylor's hypothesis that pass-through will be lower in a low-inflation environment is also considered. Both hypotheses are assessed in relation to the price of manufactured imports into New Zealand and we find that, whereas the shift to a float dramatically lowered the degree of pass-through, the later shift to a low-inflation regime has no significant additional effect on the pass-through relationship.
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Volume (Year): 18 (2004)
Issue (Month): 3 ()
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