TY - JOUR
T1 - Re-examining the exchange rate pass-through into import prices using non-linear estimation techniques
T2 - Threshold cointegration
AU - Al-Abri, Almukhtar S.
AU - Goodwin, Barry K.
PY - 2009/1
Y1 - 2009/1
N2 - We document a significant threshold cointegrating relationship among effective nominal exchange rates and import prices. Using quarterly data for five industries of 16 OECD countries, we find that the degree of pass-through improves dramatically from the 50% average documented in the literature once threshold effects are recognized. The results of our threshold cointegration model show that import prices respond faster and by a larger extent to nominal exchange rate shocks than is the case for more conventional models. These findings give empirical support to the hypothesis that an equilibrium rate of pass-through exists (e.g. [Bacchetta, P., & Van Wincoop, E. (2005). A Theory of the currency denomination of international trade, Journal of International Economics 67, 295-319; Devereux, M., Engel, C., & Storgaard, P. (2004). Endogenous exchange rate pass-through when nominal prices are set in advance, Journal of International Economics 63(2), 263-291]).
AB - We document a significant threshold cointegrating relationship among effective nominal exchange rates and import prices. Using quarterly data for five industries of 16 OECD countries, we find that the degree of pass-through improves dramatically from the 50% average documented in the literature once threshold effects are recognized. The results of our threshold cointegration model show that import prices respond faster and by a larger extent to nominal exchange rate shocks than is the case for more conventional models. These findings give empirical support to the hypothesis that an equilibrium rate of pass-through exists (e.g. [Bacchetta, P., & Van Wincoop, E. (2005). A Theory of the currency denomination of international trade, Journal of International Economics 67, 295-319; Devereux, M., Engel, C., & Storgaard, P. (2004). Endogenous exchange rate pass-through when nominal prices are set in advance, Journal of International Economics 63(2), 263-291]).
KW - Equilibrium pass-through
KW - Exchange rate pass-through
KW - Non-linear estimation
KW - OECD
KW - Threshold cointegration
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U2 - 10.1016/j.iref.2007.09.005
DO - 10.1016/j.iref.2007.09.005
M3 - Article
AN - SCOPUS:56949093455
SN - 1059-0560
VL - 18
SP - 142
EP - 161
JO - International Review of Economics and Finance
JF - International Review of Economics and Finance
IS - 1
ER -