Asymmetric Exchange Rate Pass-Through: Evidence from Major Countries

26 Pages Posted: 27 Aug 2011 Last revised: 24 Jul 2012

See all articles by Anne Laure Delatte

Anne Laure Delatte

Groupe ESC Rouen; Observatoire Français des Conjonctures Economiques

Antonia López-Villavicencio

University of Angers - Centre d'économie de l'Université de Paris Nord (CEPN)

Date Written: August 26, 2011

Abstract

The aim of this paper is to investigate the asymmetric effect of exchange rate variations on prices over the short- and long-run. To this end, we estimate a mark-up model for prices using a novel and simple asymmetric cointegrating model, with positive and negative partial sum decomposition of the nominal exchange rates. Our results show that prices react differently to appreciations and depreciations over the long-run, an effect that was previously ignored in the literature. In particular, we provide evidence that depreciations are passed through prices more than appreciations, a result that might suggest weak competition structures. This result has important implications for the proper conduct of monetary policy.

Keywords: exchange rate pass-through, ination, asymmetry, ARDL

JEL Classification: C32, E31, F31

Suggested Citation

Delatte, Anne Laure and López-Villavicencio, Antonia, Asymmetric Exchange Rate Pass-Through: Evidence from Major Countries (August 26, 2011). Journal of Macroeconomics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1917275 or http://dx.doi.org/10.2139/ssrn.1917275

Anne Laure Delatte

Groupe ESC Rouen ( email )

1, rue du Maréchal Juin - BP 188
Mont Saint Aignan Cedex, Normandy 76825
France

Observatoire Français des Conjonctures Economiques ( email )

69 Quai d'Orsay
Paris 75004
France

Antonia López-Villavicencio (Contact Author)

University of Angers - Centre d'économie de l'Université de Paris Nord (CEPN) ( email )

UMR7115
Université Paris-Nord
Paris XIII
France

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