Heads I Win, Tails You Lose: Asymmetry in Exchange Rate Pass-Through Into Import Prices
Journal of the Royal Statistical Society (A) - Forthcoming
33 Pages Posted: 11 Dec 2013 Last revised: 1 Jun 2016
Date Written: May 25, 2016
We analyze 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 liberalization.
Keywords: Exchange Rate Pass-Through; Asymmetry; Nonlinear ARDL Model; Random Coefficients Panel Data Model; Emerging Markets
JEL Classification: F10; F14; F30; F31
Suggested Citation: Suggested Citation