Long run exchange rate pass-through: Evidence from new panel data techniques

Ben Cheikh, Nidhaleddine (2011): Long run exchange rate pass-through: Evidence from new panel data techniques.

Abstract

This paper examines the exchange rate pass-through (ERPT) into import prices using recent panel data techniques. For a sample of 27 OECD countries, panel cointegration tests provide an evidence for the existence of long-run equilibrium relationship in pass-through equation. Following Pedroni (2001), we employ both FM-OLS and DOLS estimators and show that long-run ERPT elasticity does not exceed 0.70%. Individual estimates of ERPT are heterogeneous across 27 OECD countries, ranging from 0.23% in France to 0.98% in Poland. When we look for macroeconomic determinants of this long-run heterogeneity, we implement a panel threshold methodology as introduced by Hansen (2000). Our results indicate a regime-dependence of ERPT, that is, countries with higher inflation regime and more exchange rate volatility would experience a higher degree of pass-through.

• Item Type: MPRA Paper
• Language: English
• Keywords: Exchange Rate Pass-Through; Import Prices; Panel Cointegration; Panel Threshold
• Subjects: F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F40 - General; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C23 - Panel Data Models ; Spatio-temporal Models; F - International Economics > F3 - International Finance > F31 - Foreign Exchange

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