Exchange Rate Fluctuations and U.K. Manufacturing Exports

Abstract

This paper examines the impact of exchange rate fluctuations on U.K. manufacturing exports. The results indicate a recursive structure in the long run, wherein prices influence the volume of exports demanded but are not influenced by it. They also indicate that U.K. exporters only partially offset the impact on foreign consumers of fluctuations in the effective exchange rate of the pound. During the ERM period, however, the extent of pass-through to foreign prices weakened, a process that appears to have reversed after exit from the ERM. Hysteresis in the form of limited exchange rate pass-through is supported by the results, but that arising from regime switches in supply is not.

JEL Classification: C510, F310