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Exchange Rate Pass-Through to Manufactured Import Prices: The Case of Japan

  • Guneratne Banda Wickremasinghe

    (Monash University)

  • Param Silvapulle

    (Monash University)

This paper examines the exchange rate pass-through to yen based manufactured import prices of Japan using asymmetric unit root and cointegration tests and asymmetric models. Due to sticky prices, for example, there are reasons to believe that the degree of pass-through depends on whether the exchange rate appreciates or depreciates. The sample used in this study covers the period January 1975 to June 1997. Using two state regime switching models, the estimated pass-through coefficients corresponding to appreciation and depreciation of the currency are found to be 98 percent and 83 percent respectively; these coefficients are shown to be significantly different, particularly in the post recession period. Moreover, we have shown that the recession in Japan in the 1990s has significantly affected the exchange rate passthrough relationship particularly when the yen depreciates and that the proposition that exchange rate depreciation and appreciation have systematic asymmetric effects on exchange rate pass-through coefficient. Forcing appreciations and depreciations to have the same effects on the import prices does not appear to uncover the true underlying exchange rate pass through relationship.

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File URL: http://128.118.178.162/eps/it/papers/0406/0406006.pdf
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Paper provided by EconWPA in its series International Trade with number 0406006.

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Length: 25 pages
Date of creation: 21 Jun 2004
Date of revision:
Handle: RePEc:wpa:wuwpit:0406006
Note: Type of Document - pdf; pages: 25
Contact details of provider: Web page: http://128.118.178.162

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  1. repec:ltr:wpaper:1992.32 is not listed on IDEAS
  2. 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.
  3. Adolfson, Malin, 1996. "Exchange Rate Pass-Through to Swedish Import Prices," SSE/EFI Working Paper Series in Economics and Finance 123, Stockholm School of Economics.
  4. Salvador Gil-Pareja, 2000. "Exchange rates and European countries’ export prices: An empirical test for asymmetries in pricing to market behavior," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 136(1), pages 1-23, March.
  5. Prema-chandra Athukorala & Jayant Menon, 1992. "Pricing to Market Behaviour and Exchange Rate Pass-Through in Japanese Exports," Working Papers 1992.32, School of Economics, La Trobe University.
  6. Enders, Walter & Granger, C. W. J., 1998. "Unit Root Tests and Asymmetric Adjustment with an Example Using the Term Structure of Interest Rates," Staff General Research Papers 1388, Iowa State University, Department of Economics.
  7. Dominique Gross & Nicolas Schmitt, 1996. "Exchange rate pass-through and rivalry in the Swiss automobile market," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 132(2), pages 278-303, September.
  8. Gron, Anne & Swenson, Deborah L, 1996. "Incomplete Exchange-Rate Pass-Through and Imperfect Competition: The Effect of Local Production," American Economic Review, American Economic Association, vol. 86(2), pages 71-76, May.
  9. Falk, Barry, 1986. "Further Evidence on the Asymmetric Behavior of Economic Time Series over the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1096-1109, October.
  10. Dwyer, Jacqueline & Kent, Christopher & Pease, Andrew, 1994. "Exchange Rate Pass-Through: Testing the Small Country Assumption for Australia," The Economic Record, The Economic Society of Australia, vol. 70(211), pages 408-23, December.
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