Author: Haroon Mumtaz
Publisher:
ISBN:
Category : Foreign exchange rates
Languages : en
Pages : 16
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In this paper we estimate the rate of exchange rate pass-through (ERPT) into U.K. import prices using disaggregated data at the SITC-2 and SITC-3 digit levels. We show that the ERPT varies at the disaggregate level. Because of this heterogeneity at the disaggregate level, the estimate of the ERPT using aggregate data is found substantially upward-biased in our U.K. data. The upward bias exaggerates the impact of exchange rate movements on the competitiveness of imported goods relative to domestically produced goods. Further, we investigate the source of the heterogeneity of the ERPT at the disaggregate level. The industry-specific inflation rate is found significant in explaining this heterogeneity. Finally, we find a significant reduction in estimated ERPT since 1995. Unlike some previous studies, our results suggest that the decrease of the ERPT is correlated with the increased economic stability in the U.K. during the last decade.
Author: Haroon Mumtaz
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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In this paper we estimate the rate of exchange rate pass-through (ERPT) into UK import prices using disaggregate data at the SITC-2 and SITC-3 digit level. Consistent with earlier studies, we find evidence for significant heterogeneity among the estimated industry-specific pass-through rates. In an environment where cross-sectional heterogeneity is significant the use of aggregate data can be misleading since aggregation may lead to heavily biased ERPT estimates at the economy-wide level. We demonstrate that the aggregation bias caused by this heterogeneity is not negligible for the UK data. Further, we investigate the source of the cross-sectional variation in the estimated industry-specific pass-through rates. For our sample, we find the industry-specific average inflation rates to be significant in explaining this variation. Furthermore, we find evidence for short-run and long-run partial pass-through into food and manufacturing sectors. As for the economy-wide ERPT the conclusion stands, possibly reflecting the relatively large weight of manufacturing goods in UK imports. Finally, we find a significant reduction in estimated ERPT rates since 1995 caused by increased stability of the UK economy over the past decade.
Author: Ehsan U. Choudhri
Publisher: International Monetary Fund
ISBN: 1475510233
Category : Business & Economics
Languages : en
Pages : 34
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Using both regression- and VAR-based estimates, the paper finds that the exchange rate pass-through to import prices for a large number of countries is incomplete and larger than the pass-through to export prices. Previous studies have reported similar results, which give rise to the puzzle that while local currency pricing is needed to account for incomplete import price pass-through, it would not imply a lower export price pass-through. Recent explanations of this puzzle have emphasized markup adjustment in response to exchange rate changes. This paper suggests an alternative explanation based on the presence of both producer and local currency pricing. Using a dynamic general equilibrium model, the paper shows that a mix of producer and local currency pricing can explain the pass-through evidence even with a constant markup. The model can also explain the observed exchange rate and inflation variability as well as the fact that the regression and VAR estimates tend to be similar.
Author: Mr.Yan Carriere-Swallow
Publisher: International Monetary Fund
ISBN: 1475560311
Category : Business & Economics
Languages : en
Pages : 33
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A long-standing conjecture in macroeconomics is that recent declines in exchange rate pass-through are in part due to improved monetary policy performance. In a large sample of emerging and advanced economies, we find evidence of a strong link between exchange rate pass-through to consumer prices and the monetary policy regime’s performance in delivering price stability. Using input-output tables, we decompose exchange rate pass-through to consumer prices into a component that reflects the adjustment of imported goods at the border, and another that captures the response of all other prices. We find that price stability and central bank credibility have reduced the second component.
Author: Valerie Herzberg
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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The appreciation of sterling that began in 1996 appeared to pass through into import prices very slowly, an apparent example of incomplete exchange rate pass-through. Incomplete pass-through has typically been explained by a combination of sticky prices and pricing to market. This can have implications for the monetary transmission mechanism, making it important to establish whether this phenomenon exists in practice. One implication for firms' import (and domestic) price setting is that competitors' prices might affect the mark-up, although this is not a necessary condition. Some of the factors supporting pricing to market may also introduce non-linear responses to exchange rate shocks. It is established that a model of pricing to market including a role for competitors' prices fits the data, but no evidence of non-linearity is found.
Author: José Manuel Campa
Publisher:
ISBN:
Category : Exchange rate pass-through
Languages : en
Pages : 56
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"This paper presents an empirical analysis of transmission rates from exchange rate movements to import prices, across countries and product categories, in the euro area over the last fifteen years. Our results show that the transmission of exchange rate changes to import prices in the short run is high, although incomplete, and that it differs across industries and countries; in the long run, exchange rate pass-through is higher and close to one. We find no strong statistical evidence that the introduction of the euro caused a structural change in this transmission. Although estimated point elasticities seem to have declined since the introduction of the euro, we find little evidence of a structural break in the transmission of exchange rate movements except in the case of some manufacturing industries. And since the euro was introduced, industries producing differentiated goods have been more likely to experience reduced rates of exchange rate pass-through to import prices. Exchange rate changes continue to lead to large changes in import prices across euro-area countries"--National Bureau of Economic Research web site.
Author: José Manuel Campa
Publisher:
ISBN:
Category : Economics
Languages : en
Pages : 52
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Exchange rate regime optimality, as well as monetary policy effectiveness, depends on the tightness of the link between exchange rate movements and import prices. Recent debates hinge on whether producer-currency-pricing (PCP) or local currency pricing (LCP) of imports is more prevalent, and on whether exchange rate pass-through rates are endogenous to a country's macroeconomic conditions. We provide cross-country and time series evidence on both of these issues for the imports of twenty-five OECD countries. Across the OECD and especially within manufacturing industries, there is compelling evidence of partial pass-through in the short-run- rejecting both PCP and LCP. Over the long run, PCP is more prevalent for many types of imported goods. Higher inflation and exchange rate volatility are weakly associated with higher pass-through of exchange rates into import prices. However, for OECD countries, the most important determinants of changes in pass-through over time are microeconomic and relate to the industry composition of a country's import bundle.
Author: José Campa
Publisher:
ISBN:
Category : Foreign exchange rates
Languages : en
Pages : 32
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Author: International Monetary Fund
Publisher: International Monetary Fund
ISBN: 1513573691
Category : Business & Economics
Languages : en
Pages : 34
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Determining the magnitude and speed of the exchange rate passthrough (ERPT) to inflation has been of paramount importance for policy-makers in developed and emerging economies. This paper estimates the exchange rate passthrough in Mozambique using econometric techniques on a sample spanning from 2001 to 2019. Results suggest that the ERPT is assymetric, sizable and fast, with 50 percent of the exchange rate variations passing through to prices in less than six months. Policy-makers should continue to pursue low and stable inflation and develop a strong track record of prudent macroeconomic policies for the ERPT to decline.
Author: Holger Brauer
Publisher: Springer Science & Business Media
ISBN: 9783540004301
Category : Foreign exchange rates
Languages : en
Pages : 250
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