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Heads I win; tails you lose: asymmetry in exchange rate pass‐through into import prices
Author(s) -
BrunAguerre Raphael,
Fuertes AnaMaria,
GreenwoodNimmo Matthew
Publication year - 2017
Publication title -
journal of the royal statistical society: series a (statistics in society)
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.103
H-Index - 84
eISSN - 1467-985X
pISSN - 0964-1998
DOI - 10.1111/rssa.12213
Subject(s) - economics , exchange rate pass through , monetary economics , currency , quarter (canadian coin) , exchange rate , liberalization , welfare , market power , international economics , microeconomics , market economy , archaeology , history , monopoly
Summary We analyse exchange rate pass‐through into import prices for a large group of 33 emerging and developed economies from 1980, quarter 1, to 2010, quarter 4. 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.