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

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Exchange Rate Pass-Through; Asymmetry; Nonlinear ARDL Model; Random Coefficients Panel Data Model; Emerging Markets.
• Subjects: F - International Economics > F1 - Trade > F10 - General; F - International Economics > F1 - Trade > F14 - Empirical Studies of Trade; F - International Economics > F3 - International Finance > F30 - General; F - International Economics > F3 - International Finance > F31 - Foreign Exchange

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