Heads I Win, Tails You Lose: New Evidence of Long-Run Asymmetry in Exchange Rate Pass-Through by Exporting Firms

2013 ◽  
Author(s):  
Raphael Brun-Aguerre ◽  
Ana-Maria Fuertes ◽  
Matthew Greenwood-Nimmo
Keyword(s):  
Exchange Rate ◽  
Exporting Firms ◽  
Long Run ◽  
Pass Through ◽  
Exchange Rate Pass Through ◽  
New Evidence

scholarly journals An empirical study of exchange rate pass-through in China

2012 ◽  
Vol 59 (2) ◽  
pp. 135-156 ◽  
Author(s):  
Xiaowen Jin
Keyword(s):  
Exchange Rate ◽  
Linear Model ◽  
Inflation Rate ◽  
Exchange Rate Regime ◽  
Flexible Exchange Rate ◽  
Exchange Rate Policy ◽  
Chinese Government ◽  
Long Run ◽  
Pass Through ◽  
Exchange Rate Pass Through

This paper seeks to estimate exchange rate pass-through in China and investigate its relationship with monetary policy. Linear and VAR models are applied to analyze robustness. The linear model shows that, over the long run, a 1% appreciation of NEER causes a decline in the CPI inflation rate of 0.132% and PPI inflation rate of 0.495%. The VAR model supports the results of the linear model, suggesting a fairly low CPI pass-through and relatively higher PPI pass-through. Furthermore, this paper finds that, with the fixed exchange rate regime, CPI pass-through remains higher. The exchange rate regimes influence on CPI pass through, combined with the fact that appreciation diminishes inflation, suggests that the Chinese government could pursue a more flexible exchange rate policy. In addition, reasons for low exchange rate pass-through for CPI are analyzed. The analysis considers price control, basket and weight of Chinese price indices, distribution cost, and imported and non-tradable share of inputs.

How Structural Macroeconomic Shocks Can Explain Exchange Rate Pass-Through in Developing Countries: A Common Trend Approach

2009 ◽  
Vol 9 (2) ◽  
pp. 1850161 ◽  
Author(s):  
Karim Barhoumi
Keyword(s):  
Developing Countries ◽  
Exchange Rate ◽  
Traditional Approach ◽  
Macroeconomic Shocks ◽  
Structural Shocks ◽  
Long Run ◽  
The Exchange Rate ◽  
Pass Through ◽  
New Formulation ◽  
Exchange Rate Pass Through

This paper investigates the exchange rate pass-through in 12 developing countries during the period 1980-2001 by adopting a new formulation. Rather than considering the traditional approach based on the exogenous exchange rate movement through correlation between exchange rate and prices, we focus on fundamental macroeconomic shocks that affect both exchange rate and prices. In order to do that, we employ long-run restrictions à la Blanchard and Quah (1989) to identify the different shocks through an open economic macroeconomic model (ISLM framework). We use the common trends approach proposed by Warne et al (1992). This allows us to calculate the pass-through as the responses of the exchange rate, CPI and import prices to the supply, the relative demand, the nominal and the foreign prices shocks. We show that the pass-through ratio in developing countries is different when considering different structural shocks.

scholarly journals Transmission Mechanism of Exchange Rate Pass-Through to Domestic Price: The Case of Afghanistan

2020 ◽  
Vol 16 (4) ◽  
pp. 1
Author(s):  
Ajmal Arian ◽  
Arabi U.
Keyword(s):  
Exchange Rate ◽  
Impulse Response Function ◽  
Import Price ◽  
Variance Decomposition ◽  
Long Run ◽  
Effective Exchange ◽  
Short Run ◽  
Pass Through ◽  
Exchange Rate Pass Through ◽  
Effective Exchange Rate

This article investigates the mechanism of exchange rate pass-through to the prices in the context of the Islamic Republic of Afghanistan’s economy. This study explored the magnitude and speed of the pass-through effect on the prices by analyzing quarterly data from 2003 Q1 to 2019 Q2 considering five variables (viz., world food price index, foreign reserves, money supply, import price, and nominal effective exchange rate) based on the Vector Autoregression Model (VAR) with the cointegration and innovation accounting tools such has impulse response function and variance decomposition. The findings of the study suggest that the exchange rate pass-through in Afghanistan is incomplete. The import price is highly responsive in the short-run and moderately responsive an increasingly smooth movement in the long-run. However, CPI in the short-run with swift positive respond but the long-run smooth increasing movement. Furthermore, variance decomposition evidence shows that import price is affected by FR, NEER, CPI, and MS in both short-run and long-run, but the CPI strongly lagged by its variance, WFP, NEER, import price, and MS.

scholarly journals Exchange Rate Pass-through and Its Impacts on the Nigeria Economy

2020 ◽  
pp. 44-53
Author(s):  
Obasanmi, Jude Omokugbo
Keyword(s):  
Exchange Rate ◽  
Interest Rates ◽  
Time Series Data ◽  
Series Data ◽  
Policy Interventions ◽  
Long Run ◽  
Pass Through ◽  
Exchange Rate Changes ◽  
High Level ◽  
Exchange Rate Pass Through

Exchange Rate Pass-Through is an approximation of international macroeconomic transmission of prices and thus has implications for the timing of economic policy interventions. Hence, the degree and speed of pass-through is important for formulating policy responses to economic shocks. In this study, the researcher evaluated some channels and impacts of exchanges rate pass-through on the Nigerian economy during the period spanning from 1981 to 2018. Unit root and co-integration tests, as well as the error regression analysis on the time series data for the period 1981-2018 were carried out. The empirical outcomes indicated that Exchange rate changes pass-through interest rate and inflation rate channels on both short and long run and thus significantly affected interest rates and prices of goods and service in Nigeria during the study period. These outcomes yielded key policy insights and outlook which made the researcher to recommend amongst others that Government should ensure that the interest rates are brought to a level that will enable producers access investible funds. When there is high level of funds for production, exports would likely increase ceteris paribus, there by an increase in the foreign exchange earnings for the country and an appreciation of the naira.

scholarly journals MONETARY TRANSMISSION OF PERSISTENT SHOCK TO THE RISK PREMIUM: THE CASE OF INDONESIA

2011 ◽  
Vol 13 (4) ◽  
pp. 435-468
Author(s):  
Akhis R. Hutabarat
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Risk Premium ◽  
Nominal Exchange Rate ◽  
Monetary Transmission ◽  
Cost Channel ◽  
Long Run ◽  
Pass Through ◽  
Exchange Rate Pass Through

This paper investigates the relative importance of monetary transmission channel to inflation of passing persistent shock to the risk premium. The findings show that nominal exchange rate depreciation, triggered by a more persistent shock to interest risk premium, worsens the state of the economy in the short- and long-run. Such distinctive shocks effect is transmitted through the economy that typifies lack of response of consumer price disinflation to interest rate tightening caused by high real rigidity, strong cost channel of interest rate, strong cost channel of exchange rate pass-through and weak demand-side channel of exchange rate pass-through. This study suggests a proper monetary policy response, which is the smallest interest rate increases within the feasible set of monetary policy responses that the model recommends, to minimize the adverse effects of the shocks.Keywords: Exchange rate, Balance of Payment, Monetary transmission and policy, Dynamic General Equilibrium.JEL Classification: F41; E52; D58

scholarly journals Investigating Exchange Rate Pass-through to Consumer Prices in Nigeria

2021 ◽  
Vol 21 (1) ◽  
pp. 105-121
Author(s):  
Ephraim Ugwu ◽  
Ditimi Amassoma ◽  
Christopher Ehinomen
Keyword(s):  
Exchange Rate ◽  
Research Work ◽  
Exchange Rate Policy ◽  
Long Run ◽  
Consumer Prices ◽  
Short Run ◽  
Pass Through ◽  
Exchange Rate Pass Through ◽  
The Impact ◽  
Negative Shock

Abstract Research background: There have been several studies on the degree of exchange rate pass-through (ERPT) to consumer prices, as well as macroeconomic environment with yet no clear direction. Purpose: This research work investigates exchange rate pass-through effects into consumer prices in Nigeria from 1960 to 2018. Research methodology: The methodology employed by the study for estimation is the Johansen cointegration and Vector Error Correction Model (VECM) procedures. Results: The empirical results indicate an incomplete pass-through of exchange rate into consumer prices in Nigeria. The pass-through is found to be 1.6 for the model under consideration. The impulse response function results indicate that the response of the consumer prices to the exchange rate shock decreases immediately to a negative shock in the short run, and continues along the horizon to a positive shock in the long run. Also, the response of consumer prices to interest rate shock decreases immediately and continues to fluctuate to a negative shock in both the short run long run horizon. Novelty: The results support the view that exchange rate policy should be complimented with coordinated macroeconomic policy approaches in order to control inflationary level in the economy. The study therefore recommends that the Federal Government should adopt a tightening of the monetary policy as it will help reduce the impact of exchange rate depreciation on consumer prices.

Modeling Foreign Exchange Rate Pass-Through using the Exponential GARCH

2014 ◽  
pp. 139-190
Author(s):  
Baoying Lai ◽  
Nathan Lael Joseph
Keyword(s):  
Exchange Rate ◽  
Foreign Exchange ◽  
Foreign Exchange Rate ◽  
Pricing To Market ◽  
Export Prices ◽  
Long Run ◽  
Short Run ◽  
Pass Through ◽  
Exchange Rate Pass Through ◽  
Meat Sector

In this chapter, the authors use an EGARCH-ECM to estimate the pass-through effects of Foreign Exchange (FX) rate changes and changes in producers’ prices for 20 U.K. export sectors. The long-run adjustments of export prices to FX rate changes and changes in producers’ prices are within the range of –1.02% (for the Textiles sector) and –17.22% (for the Meat sector). The contemporaneous Pricing-To-Market (PTM) coefficients are within the range of –72.84% (for the Fuels sector) and –8.05% (for the Textiles sector). Short-run FX rate pass-through is not complete even after several months. Rolling EGARCH-ECMs show that the short and long-run effects of changes in FX rate and producers’ prices vary substantially, as do asymmetry and volatility estimates before equilibrium is achieved.

Exchange rate pass-through to consumer prices in Ghana: is there asymmetry?

2018 ◽  
Vol 13 (1) ◽  
pp. 162-184 ◽  
Author(s):  
Lordina Amoah ◽  
Meshach Jesse Aziakpono
Keyword(s):  
Exchange Rate ◽  
Policy Action ◽  
Import Prices ◽  
Content Type ◽  
Long Run ◽  
Consumer Prices ◽  
Pass Through ◽  
Exchange Rate Changes ◽  
Exchange Rate Pass Through ◽  
The Impact

Purpose The purpose of this paper is to reexamine the speed and magnitude of exchange rate pass-through (ERPT) to consumer prices in Ghana. Design/methodology/approach The Johansen Maximum Likelihood approach is employed in the estimation of different models of symmetric and asymmetric ERPT. Specifically asymmetric ERPT models with respect to the direction and size of exchange rate changes are estimated. Findings Results reveal that even though a depreciation in the nominal effective exchange rate will lead to an increase of consumer prices in the long-run, it is not statistically significant. Evidence also suggests a significant asymmetry with respect to direction and size of exchange rate changes. This indicates that the right ERPT model is an asymmetric model. Specifically ERPT is found to be incomplete but relatively higher in periods of depreciation than in periods of appreciation; that is 53 percent against 3 percent. ERPT is also higher during episodes of large changes (about 51 percent). Research limitations/implications It would have been interesting to analyze the impact on consumer prices through changes in import prices. That approach was not adopted due to lack of consistent data on import prices in Ghana. Practical implications It is imperative that the monetary authorities critically monitor exchange rate movements in order to be able to take swift policy action so as to counteract any inflationary pressures from the external sector. In particular, much attention should be paid to events and arrangements that could result in large depreciation of the exchange rate. Originality/value While previous studies have assumed a symmetric ERPT model for Ghana, this paper is unique in that it investigates the most appropriate model for examining ERPT in Ghana whether symmetric or an asymmetric.

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