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Nonlinearity and asymmetry in the exchange rate pass‐through: What role for nominal price stickiness?
Author(s) -
Razafindrabe Tovoy
Publication year - 2017
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/roie.12281
Subject(s) - economics , rigidity (electromagnetism) , asymmetry , econometrics , function (biology) , exchange rate , monetary economics , empirical evidence , nonlinear system , philosophy , physics , structural engineering , epistemology , quantum mechanics , evolutionary biology , engineering , biology
This paper examines the importance of nominal rigidity for nonlinearity and asymmetry of exchange rate pass‐through. For this purpose, we rely on company‐level data of French importing firms. We find that the well established fact that “prices rise faster than they fall,” which is characterized by the convex import price reaction function, lies primarily with the presence of nominal rigidity. Once price stickiness is controlled for, there is empirical evidence that the import price reaction function is rather concave if the linearity assumption can be rejected, indicating that firms aim primarily to protect their market share.