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Market Entries and Exits and the Nonlinear Behaviour of the Exchange Rate Pass-Through into Import Prices

  • Herger Nils


    (Study Center Gerzensee)

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    This paper develops an empirical framework giving rise to a nonlinear behaviour of the exchange rate pass-through (ERPT). Rather than shifts between low and high infl ation, the nonlinearity arises when large swings in the exchange rate trigger market entries and exits of importing firms. Switching regressions are used to distinguish between low and high pass-through regimes of the exchange rate into import prices. For the case of Switzerland, the corresponding results suggest that, though infl ation has been low and stable, the ERPT still doubles in value in times of a rapid appreciation of the Swiss Franc.

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    Paper provided by Swiss National Bank, Study Center Gerzensee in its series Working Papers with number 13.08.

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    Length: 20 pages
    Date of creation: Aug 2013
    Date of revision:
    Handle: RePEc:szg:worpap:1308
    Contact details of provider: Postal: Studienzentrum Gerzensee, Postfach 21, 3115 Gerzensee
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    1. Pinelopi Koujianou Goldberg & Michael M. Knetter, 1997. "Goods Prices and Exchange Rates: What Have We Learned?," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1243-1272, September.
    2. Frankel, Jeffrey & Parsley, David & Wei, Shang-Jin, 2005. "Slow Passthrough Around the World: A New Import for Developing Countries?," Working Paper Series rwp05-016, Harvard University, John F. Kennedy School of Government.
    3. Ceglowski, Janet, 2010. "Exchange rate pass-through to bilateral import prices," Journal of International Money and Finance, Elsevier, vol. 29(8), pages 1637-1651, December.
    4. Bergin, Paul R. & Feenstra, Robert C., 2000. "Staggered price setting, translog preferences, and endogenous persistence," Journal of Monetary Economics, Elsevier, vol. 45(3), pages 657-680, June.
    5. An, Lian, 2006. "Exchange Rate Pass-Through:Evidence Based on Vector Autoregression with Sign Restrictions," MPRA Paper 527, University Library of Munich, Germany.
    6. Al-Abri, Almukhtar S. & Goodwin, Barry K., 2009. "Re-examining the exchange rate pass-through into import prices using non-linear estimation techniques: Threshold cointegration," International Review of Economics & Finance, Elsevier, vol. 18(1), pages 142-161, January.
    7. Gust, Christopher & Leduc, Sylvain & Vigfusson, Robert, 2010. "Trade integration, competition, and the decline in exchange-rate pass-through," Journal of Monetary Economics, Elsevier, vol. 57(3), pages 309-324, April.
    8. José Manuel Campa & Linda S. Goldberg, 2005. "Exchange Rate Pass-Through into Import Prices," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 679-690, November.
    9. Devereux, Michael B. & Yetman, James, 2010. "Price adjustment and exchange rate pass-through," Journal of International Money and Finance, Elsevier, vol. 29(1), pages 181-200, February.
    10. Kolver Hernandez & Aslı Leblebicioğlu, 2012. "A regime-switching analysis of pass-through," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 148(3), pages 523-552, September.
    11. Robert Feenstra & Paul Bergin, 2003. "Pricing To Market, Staggered Contracts, And Real Exchange Rate Persistence," Working Papers 991, University of California, Davis, Department of Economics.
    12. Nils Herger, 2012. "Exchange Rates and Import Prices in Switzerland," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 148(III), pages 381-407, September.
    13. Dornbusch, Rudiger, 1987. "Exchange Rates and Prices," American Economic Review, American Economic Association, vol. 77(1), pages 93-106, March.
    14. repec:tpr:qjecon:v:104:y:1989:i:2:p:205-28 is not listed on IDEAS
    15. Bernhofen, Daniel M. & Xu, Peng, 2000. "Exchange rates and market power: evidence from the petrochemical industry," Journal of International Economics, Elsevier, vol. 52(2), pages 283-297, December.
    16. Jonas Stulz, 2007. "Exchange rate pass-through in Switzerland: Evidence from vector autoregressions," Economic Studies 2007-04, Swiss National Bank.
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