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Exchange Rate Pass‐through: How Much do Exchange Rate Changes Affect the Prices of Australian Exports?
Author(s) -
Swift Robyn
Publication year - 1998
Publication title -
australian economic papers
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 15
eISSN - 1467-8454
pISSN - 0004-900X
DOI - 10.1111/1467-8454.00013
Subject(s) - economics , exchange rate , cointegration , commodity , exchange rate pass through , currency , monetary economics , international economics , affect (linguistics) , local currency , econometrics , market economy , linguistics , philosophy
Australia is generally held to be a small open economy with a high proportion of commodity exports. It is therefore regarded as a ‘price taker’ in international markets, and pass‐through on exports is expected to be zero. This paper uses the Johansen Multivariate Cointegration technique to estimate the pass‐through of exchange rate changes to the destination‐currency prices of aggregate Australian exports. The results demonstrate a stable long‐run pass‐through level of 60 per cent, which refutes the ‘small‐country’ assumption of Australian exporters as price takers. These findings have important implications for Australia's terms of trade and current account deficit