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How different is the exchange rate pass-through in new member states of the EU? Some potential explanatory factors

  • María-Dolores, Ramon

    (Departamentos y Servicios::Departamentos de la UMU::Fundamentos del Análisis Económico)

This paper uses data on import unit values for nine different product categories and bilateral imports to study the pass-through of exchange rate changes into the prices of imports that originated inside the Euro Area made by some New Member States (NMSs) of the European Union and one candidate country (Turkey). I estimate industry-specific rates of pass-through across and within countries using the methodological approach proposed by de Bandt, Banerjee and Kozluk (2008). I did not find evidence in favour of the hypothesis of Local Currency Pricing (zero pass-through) and the hypothesis of Producer Currency Pricing (complete pass-through) could be accepted in some countries for different industries. My results also show that there is a clear positive relationship between exchange rate pass-through and average inflation in these countries. I do find a slightly positive pattern for the relationship between exchange rate pass-through and openness. With reference to the relationship between exchange rate pass-through and the type of exchange rate regime I observe that a less volatile exchange rate implies a less degree of exchange rate pass-through. In industries I obtain a less degree of exchange rate pass-through in differentiated manufactured products. By including possible statistical break-dates in the estimation process I observe that some NMSs have decreased the exchange rate pass-through in recent years. Some of the breaks are close to the dates of some major institutional changes in these countries (changes in monetary policy and exchange rate regimes and the starting up of the EU membership).

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Paper provided by DIGITUM. Universidad de Murcia in its series UMUFAE Economics Working Papers with number 4698.

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Length: 33
Date of creation: Jun 2009
Date of revision:
Handle: RePEc:mur:wpaper:4698
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  1. Michael B. Devereux & Charles Engel, 2002. "Exchange Rate Pass-Through, Exchange Rate Volatility, and Exchange Rate Disconnect," NBER Working Papers 8858, National Bureau of Economic Research, Inc.
  2. Michael Devereux & Charles Engel & Cedric Tille, 1999. "Exchange-Rate Pass-Through and the Welfare Effects of the Euro," Discussion Papers in Economics at the University of Washington 0034, Department of Economics at the University of Washington.
  3. Toshitaka Sekine, 2006. "Time-varying exchange rate pass-through: experiences of some industrial countries," BIS Working Papers 202, Bank for International Settlements.
  4. Jeffrey A. Frankel & David C. Parsley & Shang-Jin Wei, 2005. "Slow Passthrough Around the World: A New Import for Developing Countries?," NBER Working Papers 11199, National Bureau of Economic Research, Inc.
  5. José Manuel Campa & Linda S. Goldberg & José M. González-Mínguez, 2005. "Exchange-Rate Pass-Through to Import Prices in the Euro Area," NBER Working Papers 11632, National Bureau of Economic Research, Inc.
  6. Anindya Banerjee & Josep Lluís Carrion-i-Silvestre, 2006. "Cointegration in Panel Data with Breaks and Cross-Section Dependence," Economics Working Papers ECO2006/5, European University Institute.
  7. Campa, Jose Manuel & Gonzalez Minguez, Jose M., 2006. "Differences in exchange rate pass-through in the euro area," European Economic Review, Elsevier, vol. 50(1), pages 121-145, January.
  8. Darvas, Zsolt, 2001. "Exchange rate pass-through and real exchange rate in EU candidate countries," Discussion Paper Series 1: Economic Studies 2001,10, Deutsche Bundesbank, Research Centre.
  9. Vanessa Berenguer Rico & Josep Lluis Carrion Silvestre, 2006. "Testing for multicointegration in panel data with common factors," Working Papers in Economics 160, Universitat de Barcelona. Espai de Recerca en Economia.
  10. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
  11. Charles P. Thomas & Jaime R. Marquez, 2006. "Measurement matters for modeling U.S. import prices," International Finance Discussion Papers 883, Board of Governors of the Federal Reserve System (U.S.).
  12. Jonathan McCarthy, 2007. "Pass-Through of Exchange Rates and Import Prices to Domestic Inflation in Some Industrialized Economies," Eastern Economic Journal, Eastern Economic Association, vol. 33(4), pages 511-537, Fall.
  13. Maurice Obstfeld, 2002. "Inflation-Targeting, Exchange-Rate Pass-Through, and Volatility," American Economic Review, American Economic Association, vol. 92(2), pages 102-107, May.
  14. Gita Gopinath & Roberto Rigobon, 2006. "Sticky Borders," NBER Working Papers 12095, National Bureau of Economic Research, Inc.
  15. Giovanni P. Olivei, 2002. "Exchange rates and the prices of manufacturing products imported into the United States," New England Economic Review, Federal Reserve Bank of Boston, issue Q 1, pages 3 - 18.
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