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Asymmetric exchange rate pass-through: Evidence from major countries

Author

Listed:
  • Anne-Laure Delatte

    (Pôle Finance Responsable - Rouen Business School - Rouen Business School)

  • Antonia Lòpez-Villavicencio

    (CEPN - Centre d'Economie de l'Université Paris Nord - UP13 - Université Paris 13 - USPC - Université Sorbonne Paris Cité - CNRS - Centre National de la Recherche Scientifique)

Abstract

The aim of this paper is to investigate the asymmetric effect of exchange rate variations on prices over the short- and long-run in four major developed countries. To this end, we estimate a mark-up model for prices using a novel and simple asymmetric cointegrating model, with positive and negative partial sum decomposition of the nominal exchange rates. Our results show that prices react differently to appreciations and depreciations over the long-run, an effect that was previously ignored in the literature. In particular, we provide evidence that depreciations are passed through prices more than appreciations, a result that might suggest weak competition structures. This result has important implications for the proper conduct of monetary policy.

Suggested Citation

  • Anne-Laure Delatte & Antonia Lòpez-Villavicencio, 2012. "Asymmetric exchange rate pass-through: Evidence from major countries," Post-Print hal-00779761, HAL.
    • Handle: RePEc:hal:journl:hal-00779761
    DOI: 10.1016/j.jmacro.2012.03.003
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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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