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Heads I Win, Tails You Lose: Asymmetry in Exchange Rate Pass-Through Into Import Prices

Author

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  • Raphael, Brun-Aguerre
  • Ana-Maria, Fuertes
  • Matthew, Greenwood-Nimmo

Abstract

We analyse exchange rate pass-through into import prices for a large group of 33 emerging and developed economies from 1980Q1 to 2010Q4. Our error correction models permit asymmetric pass-through for currency appreciations and depreciations over three horizons of interest: on impact, in the short run and in the long run. We find that depreciations are typically passed-through more strongly than appreciations in the long-run, suggesting that exporters may exert a degree of long-run pricing power. This asymmetry is stronger in economies which are more import dependent but is moderated by freedom to trade and a positive output gap. Given that this pass-through asymmetry is welfare-reducing for consumers in the destination market, a key macroeconomic implication is that import-dependent economies, in particular, can benefit from trade liberalisation.

Suggested Citation

  • Raphael, Brun-Aguerre & Ana-Maria, Fuertes & Matthew, Greenwood-Nimmo, 2016. "Heads I Win, Tails You Lose: Asymmetry in Exchange Rate Pass-Through Into Import Prices," MPRA Paper 71764, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:71764
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    File URL: https://mpra.ub.uni-muenchen.de/71764/1/MPRA_paper_71764.pdf
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    References listed on IDEAS

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    Keywords

    Exchange Rate Pass-Through; Asymmetry; Nonlinear ARDL Model; Random Coefficients Panel Data Model; Emerging Markets.;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F30 - International Economics - - International Finance - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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