Munich Personal RePEc Archive

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

Raphael, Brun-Aguerre and Ana-Maria, Fuertes and Matthew, Greenwood-Nimmo (2016): Heads I Win, Tails You Lose: Asymmetry in Exchange Rate Pass-Through Into Import Prices. Forthcoming in: Journal of the Royal Statistical Society - Series A

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Abstract

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.

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