Re-examining the time-varying nature and determinants of exchange rate pass-through into import prices

Numerous studies have focused on the time-varying nature of exchange rate pass-through (ERPT) into import prices and investigated the possible reasons for controlling its changes. Unlike the numerous previous studies, we used the quantile regression method to obtain the time-varying ERPTs of 16 OECD...

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Bibliographic Details
Published inThe North American journal of economics and finance Vol. 49; pp. 331 - 351
Main Author Chou, K.W.
Format Journal Article
LanguageEnglish
Published Elsevier Inc 01.07.2019
Subjects
Exchange rate pass-through
Import prices
Nonlinearity
Panel regression
Quantile regression
Exchange rate pass-through
E31
F41
Import prices
F31
Nonlinearity
Panel regression
Quantile regression
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Summary:Numerous studies have focused on the time-varying nature of exchange rate pass-through (ERPT) into import prices and investigated the possible reasons for controlling its changes. Unlike the numerous previous studies, we used the quantile regression method to obtain the time-varying ERPTs of 16 OECD countries. In general, the ERPTs before 1990s were relatively higher than the conditional mean estimate and relatively lower in later years. Panel regression analysis indicated that time-varying ERPTs are significantly and positively correlated with inflation rate/inflation volatility and significantly and negatively correlated with exchange rate volatility, output gap, and degree of trade openness. We also showed that ERPT responses insignificantly to inflation rate in the deflation environment. Moreover, ERPT responses to exchange rate depreciation and appreciation will differ depending on the scale of the exchange rate changes. This is potentially because the ERPT behavior of firms are primarily linked to the market competition that they face.
ISSN:1062-9408
1879-0860
DOI:10.1016/j.najef.2019.04.022