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Exchange Rate Pass-through: The Role of Regime Changes

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  • Douglas Steel
  • Alan King

Abstract

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.

Suggested Citation

  • Douglas Steel & Alan King, 2004. "Exchange Rate Pass-through: The Role of Regime Changes," International Review of Applied Economics, Taylor & Francis Journals, vol. 18(3), pages 301-322.
  • Handle: RePEc:taf:irapec:v:18:y:2004:i:3:p:301-322
    DOI: 10.1080/0269217042000227114
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    References listed on IDEAS

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    1. Michael Olive, 2002. "Price and Markup Behaviour in Manufacturing," Books, Edward Elgar Publishing, number 2463.
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    Cited by:

    1. Sushanta Mallick & Helena Marques, 2008. "Passthrough of Exchange Rate and Tariffs into Import Prices of India: Currency Depreciation versus Import Liberalization," Review of International Economics, Wiley Blackwell, vol. 16(4), pages 765-782, September.
    2. María-Dolores, Ramón, 2010. "Exchange rate pass-through in New Member States and candidate countries of the EU," International Review of Economics & Finance, Elsevier, vol. 19(1), pages 23-35, January.
    3. Athukorala, Premachandra & Menon, Jayant, 1994. "Pricing to Market Behaviour and Exchange Rate Pass-Through in Japanese Exports," Economic Journal, Royal Economic Society, vol. 104(423), pages 271-281, March.
    4. Andrés González & Hernán Rincón & Norberto Rodríguez, 2008. "La transmisión de los choques a la tasa de cambio sobre la inflación de los bienes importados en presencia de asimetrías," Borradores de Economia 532, Banco de la Republica de Colombia.
    5. Hernán Rincón & Édgar Caicedo & Norberto Rodríguez, 2007. "Exchange Rate Pass-Through Effects:A Disaggregate Analysis Of Colombianimports Of Manufactured Goods," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE, vol. 25(54), pages 90-121, June.
    6. Slavi T. Slavov, 2008. "Does Monetary Integration Reduce Exchange Rate Pass-Through?," The World Economy, Wiley Blackwell, vol. 31(12), pages 1599-1624, December.
    7. Jiménez-Rodríguez, Rebeca & Morales-Zumaquero, Amalia, 2016. "A new look at exchange rate pass-through in the G-7 countries," Journal of Policy Modeling, Elsevier, vol. 38(5), pages 985-1000.
    8. Hakan Kara & Hande Kucuk Tuger & Umit Ozlale & Burc Tuger & Devrim Yavuz & Eray M. Yucel, 2005. "Exchange Rate Pass-Through in Turkey : Has it Changed and to What Extent?," Working Papers 0504, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    9. Hakan Kara & Hande Küçük-Tuger & Ümit Özlale & Burç Tuger & Eray M. Yücel, 2007. "Exchange Rate Regimes And Pass-Through: Evidence From The Turkish Economy," Contemporary Economic Policy, Western Economic Association International, vol. 25(2), pages 206-225, April.
    10. Lin, Po-Chun & Wu, Chung-Shu, 2012. "Exchange rate pass-through in deflation: The case of Taiwan," International Review of Economics & Finance, Elsevier, vol. 22(1), pages 101-111.
    11. Athukorala, Premachandra & Menon, Jayant, 1995. "Exchange Rates and Strategic Pricing: The Case of Swedish Machinery Exports," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 57(4), pages 533-546, November.
    12. Ozkan, Ibrahim & Erden, Lutfi, 2015. "Time-varying nature and macroeconomic determinants of exchange rate pass-through," International Review of Economics & Finance, Elsevier, vol. 38(C), pages 56-66.
    13. Elías Albagli & Alberto Naudon & Rodrigo Vergara, 2015. "Inflation Dynamics in LATAM: A Comparison with Global Trends and Implications for Monetary Policy," Economic Policy Papers Central Bank of Chile 58, Central Bank of Chile.
    14. repec:voj:journl:v:63:y:2016:i:5:p:563-579 is not listed on IDEAS
    15. Andrés González & Hernán Rincóm & Norberto Rodríguez, 2008. "La transmisión de los choques a la tasa de cambio sobre la inflación," BORRADORES DE ECONOMIA 005089, BANCO DE LA REPÚBLICA.
    16. Nogueira Jr., Reginaldo P. & León-Ledesma, Miguel A., 2009. "Fear of Floating in Brazil: Did Inflation Targeting matter?," The North American Journal of Economics and Finance, Elsevier, vol. 20(3), pages 255-266, December.

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