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Effects of a Free Trade Agreement on the Exchange Rate Pass-Through to Import Prices

Author

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  • Arnoldo Lopez Marmolejo

Abstract

This paper investigates the effect of trade liberalization on the exchange rate pass-through (ERPT) to import prices. To do so, it employs an empirical estimation of the effects of NAFTA on the Mexican ERPT, and uses a Ricardian general equilibrium model. The model identifies the direct relationship between the tariffs and the pass-through by good. The second channel is the effect that tariffs have on the composition of imports, altering indirectly the aggregate pass-through.

Suggested Citation

  • Arnoldo Lopez Marmolejo, 2011. "Effects of a Free Trade Agreement on the Exchange Rate Pass-Through to Import Prices," Working Papers 1102, BBVA Bank, Economic Research Department.
  • Handle: RePEc:bbv:wpaper:1102
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    References listed on IDEAS

    as
    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. Raphael Auer & Thomas Chaney, 2009. "Exchange Rate Pass-Through in a Competitive Model of Pricing-to-Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(s1), pages 151-175, February.
    3. Alexander Mihailov, 2009. "Exchange rate pass-through to prices in macrodata: a comparative sensitivity analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 14(4), pages 346-377.
    4. Alexander Mihailov, 2009. "Exchange rate pass-through to prices in macrodata: a comparative sensitivity analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 14(4), pages 346-377.
    5. Otani, Akira & Shiratsuka, Shigenori & Shirota, Toyoichiro, 2003. "The Decline in the Exchange Rate Pass-Through: Evidence from Japanese Import Prices," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 21(3), pages 53-81, October.
    6. Coricelli, Fabrizio & Jazbec, Bostjan & Masten, Igor, 2006. "Exchange rate pass-through in EMU acceding countries: Empirical analysis and policy implications," Journal of Banking & Finance, Elsevier, vol. 30(5), pages 1375-1391, May.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Hayakawa, Kazunobu & Kim, HanSung & Yoshimi, Taiyo, 2015. "FTA in international finance : impacts of exchange rates on FTA utilization," IDE Discussion Papers 494, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    2. Mallick, Sushanta & Marques, Helena, 2016. "Pricing strategy of emerging market exporters in alternate currency regimes: The role of comparative advantage," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 68-81.
    3. repec:eee:jimfin:v:75:y:2017:i:c:p:93-108 is not listed on IDEAS
    4. Hayakawa, Kazunobu & Kim, Han-Sung & Yoshimi, Taiyo, 2017. "Exchange rate and utilization of free trade agreements: Focus on rules of origin," Journal of International Money and Finance, Elsevier, vol. 75(C), pages 93-108.
    5. Hakan Orbay & Benan Zeki Orbay, 2013. "Export Subsidies and Exchange Rate Pass-through," Review of International Economics, Wiley Blackwell, vol. 21(4), pages 627-635, September.
    6. Mallick, Sushanta & Marques, Helena, 2016. "Does quality differentiation matter in exporters' pricing behaviour? Comparing China and India," China Economic Review, Elsevier, vol. 40(C), pages 71-90.
    7. repec:kap:openec:v:29:y:2018:i:1:d:10.1007_s11079-017-9472-x is not listed on IDEAS
    8. repec:eee:iburev:v:26:y:2017:i:6:p:1034-1050 is not listed on IDEAS

    More about this item

    Keywords

    Ricardian model; exchange rate pass-through; NAFTA;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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