Industry Heterogeneity and Exchange Rate Pass-through PDF Download
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Author: Camila Casas
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Author: Camila Casas
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Author:
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Author: Tersoo David Iorngurum
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
Estimates of the exchange rate pass-through vary significantly across studies, making it difficult for policymakers and researchers to ascertain the true impact of exchange rate fluctuations on domestic prices. I conduct a meta-analysis to understand why estimates differ and provide consensus for the conflicting results. My dataset includes 32 primary studies containing 684 estimates for 108 countries. Because there are many potential causes of heterogeneity, I use Bayesian model averaging to identify the most important ones. I find that estimates vary due to differences in country-specific and methodological characteristics. The country-specific characteristics include central bank independence, inflationary environment, and economic development, while the methodological variables include data frequency, data dimension, and data time span. When I control for differences in methodology and assign greater weight to those that reflect the best practices in the literature, I find that the implied pass-through estimates remain substantial, albeit smaller than suggested in the literature. The pass-through is 6% for developed countries and 9% for developing countries.
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: Natalie Chen
Publisher: International Monetary Fund
ISBN: 1475526431
Category : Business & Economics
Languages : en
Pages : 58
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This paper investigates theoretically and empirically the heterogeneous response of exporters to real exchange rate fluctuations due to product quality. Our model shows that the elasticity of demand perceived by exporters decreases with a real depreciation and with quality, leading to more pricing-to-market and to a smaller response of export volumes to a real depreciation for higher quality goods. We test the proposed theory using a highly disaggregated Argentinean firm-level wine export dataset between 2002 and 2009 combined with experts wine rankings as a measure of quality. The model predictions find strong support in the data and the results are robust to different measures of quality, samples, specifications, and to the potential endogeneity of quality.
Author: Jaehwa Lee
Publisher:
ISBN:
Category :
Languages : en
Pages : 31
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This study empirically examines the nature of the exchange rate-pass through (ERPT) into export and import prices in the case of a small open economy of Korea by using a bounds testing approach. The estimation results obtained from the unrestricted error correction model (UECM) using data on Korea and its major trading partners, Japan and the U.S., provide new evidences showing that statistical significances in the degree of pass-through vary with respect to industries. The study also reveals that there is heterogeneity across sectors in their reaction to exchange rate as well as its asymmetry and persistence. The evidence indicate that the raw materials sector has a difference in the ERPT between the short and the long run effects, suggesting that the incomplete exchange rate pass-through seems to be persistent within the sector. In particular, the evidence for agriculture does support the hypothesis of asymmetric response to the ERPT in the long run. This result supports that of previous findings, but also provides more insight for the exchange rate theory and trade policy.
Author: Haroon Mumtaz
Publisher:
ISBN:
Category : Foreign exchange rates
Languages : en
Pages : 16
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Book Description
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: Camila Casas
Publisher: International Monetary Fund
ISBN: 1484330609
Category : Business & Economics
Languages : en
Pages : 62
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Book Description
Most trade is invoiced in very few currencies. Despite this, the Mundell-Fleming benchmark and its variants focus on pricing in the producer’s currency or in local currency. We model instead a ‘dominant currency paradigm’ for small open economies characterized by three features: pricing in a dominant currency; pricing complementarities, and imported input use in production. Under this paradigm: (a) the terms-of-trade is stable; (b) dominant currency exchange rate pass-through into export and import prices is high regardless of destination or origin of goods; (c) exchange rate pass-through of non-dominant currencies is small; (d) expenditure switching occurs mostly via imports, driven by the dollar exchange rate while exports respond weakly, if at all; (e) strengthening of the dominant currency relative to non-dominant ones can negatively impact global trade; (f) optimal monetary policy targets deviations from the law of one price arising from dominant currency fluctuations, in addition to the inflation and output gap. Using data from Colombia we document strong support for the dominant currency paradigm.
Author: Stéphane Dées
Publisher:
ISBN:
Category : Econometric models
Languages : en
Pages : 54
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Author: Haroon Mumtaz
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
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.
