Heads I Win, Tails You Lose: Asymmetry in Exchange Rate Pass-Through into Import Prices

Brun-Aguerre, R., Fuertes, A. & Greenwood-Nimmo, M. (2016). Heads I Win, Tails You Lose: Asymmetry in Exchange Rate Pass-Through into Import Prices. Journal of the Royal Statistical Society Series A: Statistics in Society, doi: 10.1111/rssa.12213

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We analyse exchange rate pass-through into import prices for a large group of 33 emerging and developed economies from 1980Q1 to 2010Q4. Our error correction models permit asymmetric pass-through for currency appreciations and depreciations over three horizons of interest: on impact, in the short run and in the long run. We find that depreciations are typically passed-through more strongly than appreciations in the long-run, suggesting that exporters may exert a degree of long-run pricing power. This asymmetry is stronger in economies which are more import dependent but is moderated by freedom to trade and a positive output gap. Given that this pass-through asymmetry is welfare-reducing for consumers in the destination market, a key macroeconomic implication is that import-dependent economies, in particular, can benefit from trade liberalisation.

Item Type: Article
Additional Information: This is the peer reviewed version of the following article: Brun-Aguerre, R. Fuertes, A. and Greenwood-Nimmo, M. Heads I win, tails you lose: Asymmetry in exchange rate pass-through into import prices, which has been published in final form at http://dx.doi.org/. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving."
Uncontrolled Keywords: Exchange rate pass-through; asymmetry; nonlinear ARDL model; random co-efficients panel data model; emerging markets.
Subjects: H Social Sciences > HG Finance
Divisions: Cass Business School > Faculty of Finance
URI: http://openaccess.city.ac.uk/id/eprint/14781

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