Theoretical and Empirical Evidence for the Impact of Cross-Border Production Sharing on Exchange Rate Pass-Through

2013 ◽  
Vol 49 (sup4) ◽  
pp. 280-300
Author(s):  
Lihuei Lan ◽  
Luke Lin ◽  
Wenyuan Lin ◽  
Shuangshii Chuang
Keyword(s):  
Exchange Rate ◽  
Empirical Evidence ◽  
Cross Border ◽  
Production Sharing ◽  
Pass Through ◽  
Exchange Rate Pass Through ◽  
The Impact

scholarly journals Exchange rate pass-through to inflation in Egypt: a structural VAR approach

2018 ◽  
Vol 3 (2) ◽  
pp. 2-19 ◽  
Author(s):  
Omneia Helmy ◽  
Mona Fayed ◽  
Kholoud Hussien
Keyword(s):  
Exchange Rate ◽  
Price Index ◽  
Structural Var ◽  
Empirical Literature ◽  
Content Type ◽  
The Exchange Rate ◽  
Exchange Rate Shocks ◽  
Pass Through ◽  
Exchange Rate Pass Through ◽  
The Impact

Purpose The theoretical and empirical literature stipulated that exchange rate shocks do influence the domestic price of imports. Hence, this paper aims to investigate the underlying relationship between the exchange rate and prices known as the exchange rate pass-through. Design/methodology/approach The paper uses a structural vector auto-regression (SVAR) model, drawing on Bernanke (1986) and Sims (1986), to empirically examine and analyze the pass-through of exchange rate fluctuations to domestic prices in Egypt. Findings The empirical results of the monthly data between 2003 and 2015 revealed that the exchange rate pass-through in Egypt is fairly substantial but incomplete and slow in the three price indices [IMP, producer price index and consumer price index (CPI)]. However, the impact is more prominent for consumer prices than for any other price index. This finding could be attributed to the fact that the CPI in Egypt is composed of a relatively large number of subsidized commodities and goods with administered prices as well as the authorities’ behavior in manipulating prices (i.e. export ban). This is expected to weaken the transmission of exchange rate shocks. Practical implications The result has interesting implications for Egypt’s ability to attain an effective inflation targeting regime. Originality/value The study contributes to the literature by assessing the effect of changes in the exchange rate (the Egyptian £ vis-à-vis the US$) on prices using an updated time series from 2003 to 2015. It addresses the limitations of the study of Nafie et al. (2004), which found no strong relationship between the exchange rate and inflation rate in the Egyptian context. One of these limitations was using the CPI, as the only price index.

Conclusions

2016 ◽  
Author(s):  
Jeffry A. Frieden
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Exchange Rate Policy ◽  
Theoretical Argument ◽  
Economic Agents ◽  
Cross Border ◽  
Domestic Prices ◽  
Pass Through ◽  
Exchange Rate Pass Through ◽  
Export Competition

This chapter summarizes key findings. This book makes a simple theoretical argument about the distributional implications of exchange rate policy. It suggests that economic actors with important cross-border interests, exposed to currency volatility, will tend to prefer more stable and predictable exchange rates. It also claims that tradables producers will, all else being equal, tend to prefer a depreciated real exchange rate. These concerns will be tempered by the extent of exchange rate pass-through—that is, the degree to which currency movements affect domestic prices. The analysis in this book shows that countries whose economic agents are more involved in cross-border trade are more likely to fix their exchange rates in order to reduce currency volatility. Countries with large groups susceptible to import or export competition—import-competing manufacturers and export farmers—are more likely to choose flexible exchange rates that allow currency depreciations. Governments facing an election encourage or allow currency appreciation that increases the purchasing power of consumers.

Understanding the exchange rate pass-through to consumer prices in Vietnam: the SVAR approach

2019 ◽  
Vol 15 (5) ◽  
pp. 971-989 ◽  
Author(s):  
Anh The Vo ◽  
Chi Minh Ho ◽  
Duc Hong Vo
Keyword(s):  
Exchange Rate ◽  
Economic Integration ◽  
Global Financial Crisis ◽  
Global Market ◽  
Content Type ◽  
Consumer Prices ◽  
The Exchange Rate ◽  
Pass Through ◽  
Exchange Rate Pass Through ◽  
The Impact

Purpose The purpose of this paper is to examine the degree of the exchange rate pass-through (ERPT) to the consumer price index (CPI) at both aggregated and disaggregated levels in Vietnam. Updated data of the nominal effective exchange rate (NEER) and bilateral exchange rate (BiER) have been utilized in this study for the comparison purposes. Design/methodology/approach Advanced time-series approaches such as a structural vector autoregressive framework, structural impulse response functions (SIRFs), and structural forecast-error variance decomposition (SFEVD) are utilized in this paper. Findings Empirical findings from this paper present an incomplete degree of the ERPT to the aggregated CPI. The ERPT based on the BiER is observed to have substantially larger magnitude than the NEER-based pass-through. For the disaggregated level, the degree of the ERPT varies considerably across sub-components of the CPI, with a higher magnitude of the ERPT elasticity being found from the BiER estimations. The index of housing and construction materials has the largest ERPT based on the BiER, followed by the food and foodstuffs (1.00 and 0.56, respectively). The macroeconomic and financial environments as well as an economic integration into the global market may be the main causes of a higher ERPT in Vietnam in comparison with other ASEAN countries. Research limitations/implications The significant and incomplete pass-through of the exchange rate in Vietnam can affect firms’ and households’ budget planning, savings and profits. This finding generally implies that the cost of devaluation of the domestic currency affects the society as the whole in terms of welfare. The State Bank of Vietnam should carefully consider the overall effect of welfares when formulating and implementing strategies of currency devaluation. In addition, the Vietnamese economy becomes more sensitive to external vulnerabilities via changes of the exchange rate during an increasingly economic integration into the global market. In order to maintain inflation stability, it is vitally important to reduce the impact of exchange rate movements on the domestic prices, both aggregated and disaggregated levels, by pursuing either monetary policy credibility or inflation targeting. Originality/value Previous studies on the ERPT literature in the Asia region or for emerging countries focus mainly on the aggregated data of the CPI. Previous studies were conducted before the global financial crisis in 2008/2009. The current paper is the first of its kind to examine the pass-through from exchange rates to consumer prices in Vietnam using both aggregated and disaggregated data.

Book Reviews

2017 ◽  
Vol 55 (1) ◽  
pp. 231-232
Keyword(s):  
Exchange Rate ◽  
External Financing ◽  
J Curve ◽  
Pass Through ◽  
The Interest Rate ◽  
External Sector ◽  
Exchange Rate Pass Through ◽  
The Impact ◽  
Effectiveness Of Monetary Policy

R.K. Pattnaik of SP Jain Institute of Management and Research reviews “Managing the Macroeconomy: Monetary and Exchange Rate Issues in India,” by Ramkishen S. Rajan and Venkataramana Yanamandra. The Econlit abstract of this book begins: “Provides an empirical assessment of some of India's crucial policy challenges regarding its monetary and external sector management. Discusses a macroeconomic overview of the Indian economy; the effectiveness of monetary policy in India--the interest rate pass-through channel; understanding exchange rate and reserve management in India; the impact of exchange rate pass-through on inflation in India; rupee movements and India's trade balance--exploring the existence of a J-curve; and external financing in India--sources and types of foreign direct investment.”

Antidumping Investigations and the Pass-Through of Antidumping Duties and Exchange Rates: Reply

2010 ◽  
Vol 100 (3) ◽  
pp. 1283-1284 ◽  
Author(s):  
Bruce A Blonigen ◽  
Stephen E Haynes
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Empirical Evidence ◽  
Structural Breaks ◽  
Theoretical Explanation ◽  
Antidumping Duties ◽  
Pass Through ◽  
Exchange Rate Pass Through ◽  
The U.S

This reply responds to a comment that correctly identifies an invalid assumption in our original article that antidumping (AD) duties are subtracted from the U.S. price when calculating AD duties in administrative reviews. While this point invalidates our theoretical explanation and empirical evidence on the magnitude of AD duty pass-through, it does not affect our original article's theory or empirical evidence on the magnitude of exchange rate pass-through, or the presence of structural breaks in both the AD duty and exchange-rate pass-through coefficients stemming from AD investigations and orders.

scholarly journals Investigating Exchange Rate Pass-through to Consumer Prices in Nigeria

2021 ◽  
Vol 21 (1) ◽  
pp. 105-121
Author(s):  
Ephraim Ugwu ◽  
Ditimi Amassoma ◽  
Christopher Ehinomen
Keyword(s):  
Exchange Rate ◽  
Research Work ◽  
Exchange Rate Policy ◽  
Long Run ◽  
Consumer Prices ◽  
Short Run ◽  
Pass Through ◽  
Exchange Rate Pass Through ◽  
The Impact ◽  
Negative Shock

Abstract Research background: There have been several studies on the degree of exchange rate pass-through (ERPT) to consumer prices, as well as macroeconomic environment with yet no clear direction. Purpose: This research work investigates exchange rate pass-through effects into consumer prices in Nigeria from 1960 to 2018. Research methodology: The methodology employed by the study for estimation is the Johansen cointegration and Vector Error Correction Model (VECM) procedures. Results: The empirical results indicate an incomplete pass-through of exchange rate into consumer prices in Nigeria. The pass-through is found to be 1.6 for the model under consideration. The impulse response function results indicate that the response of the consumer prices to the exchange rate shock decreases immediately to a negative shock in the short run, and continues along the horizon to a positive shock in the long run. Also, the response of consumer prices to interest rate shock decreases immediately and continues to fluctuate to a negative shock in both the short run long run horizon. Novelty: The results support the view that exchange rate policy should be complimented with coordinated macroeconomic policy approaches in order to control inflationary level in the economy. The study therefore recommends that the Federal Government should adopt a tightening of the monetary policy as it will help reduce the impact of exchange rate depreciation on consumer prices.

scholarly journals Exchange Rate Pass-Through to Import Prices, Inflation and Monetary Policy in Nigeria

2015 ◽  
Vol 2 (1) ◽  
pp. 60 ◽  
Author(s):  
M. O. Fatai ◽  
T. O. Akinbobola
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Impulse Response Function ◽  
Exchange Rate Policy ◽  
Annual Data ◽  
Import Prices ◽  
The World ◽  
Pass Through ◽  
Exchange Rate Pass Through ◽  
The Impact

The study investigates the impact of Exchange Rate Pass-through (ERPT) to import prices, Inflation, and monetary policy in Nigeria. Secondary data were used. The data covered the period of 1986-2012. Annual data on Nominal Effective Exchange Rate Index (NEER), Import Prices (IMP), Interest Rate (ITR), Money Supply (MS) and Inflation (INF) were sourced from the publication of the Central Bank of Nigeria (CBN) and Oil Price Index (OPI) were sourced from the World Development Indicators (WDI) published by the World Bank. The study applied Six-Variable VAR Model to estimate the Impulse Response Function (IRFs) and Variance Decomposition (VDCs). Based on SVAR analysis the study found that ERPT in Nigeria during the period under review is moderate, significant and persistent in the case of import prices and low and short lived in the case of inflation. The fact is that, ERPT was found to be incomplete and has useful implication to policymakers, especially in the design and implementation of exchange rate and monetary policy. Thus policy makers should take into account the incomplete response of import prices when they decide to devalue the currency so as to improve trade balance irrespective of several other factors which might determine the effectiveness of exchange rate policy (such as supply factors, elasticity of foreign and domestic demand, availability of substitutes etc ). To achieve this, the increased role of CBN will definitely require a carefully developed monetary policy and a strengthening of its institutional capacity. 

Exchange rate pass-through to consumer prices in Ghana: is there asymmetry?

2018 ◽  
Vol 13 (1) ◽  
pp. 162-184 ◽  
Author(s):  
Lordina Amoah ◽  
Meshach Jesse Aziakpono
Keyword(s):  
Exchange Rate ◽  
Policy Action ◽  
Import Prices ◽  
Content Type ◽  
Long Run ◽  
Consumer Prices ◽  
Pass Through ◽  
Exchange Rate Changes ◽  
Exchange Rate Pass Through ◽  
The Impact

Purpose The purpose of this paper is to reexamine the speed and magnitude of exchange rate pass-through (ERPT) to consumer prices in Ghana. Design/methodology/approach The Johansen Maximum Likelihood approach is employed in the estimation of different models of symmetric and asymmetric ERPT. Specifically asymmetric ERPT models with respect to the direction and size of exchange rate changes are estimated. Findings Results reveal that even though a depreciation in the nominal effective exchange rate will lead to an increase of consumer prices in the long-run, it is not statistically significant. Evidence also suggests a significant asymmetry with respect to direction and size of exchange rate changes. This indicates that the right ERPT model is an asymmetric model. Specifically ERPT is found to be incomplete but relatively higher in periods of depreciation than in periods of appreciation; that is 53 percent against 3 percent. ERPT is also higher during episodes of large changes (about 51 percent). Research limitations/implications It would have been interesting to analyze the impact on consumer prices through changes in import prices. That approach was not adopted due to lack of consistent data on import prices in Ghana. Practical implications It is imperative that the monetary authorities critically monitor exchange rate movements in order to be able to take swift policy action so as to counteract any inflationary pressures from the external sector. In particular, much attention should be paid to events and arrangements that could result in large depreciation of the exchange rate. Originality/value While previous studies have assumed a symmetric ERPT model for Ghana, this paper is unique in that it investigates the most appropriate model for examining ERPT in Ghana whether symmetric or an asymmetric.

scholarly journals Asymmetric Exchange Rate Pass-Through in Southeast Asian Rice Trade

2021 ◽  
pp. 1-34
Author(s):  
Taylor Wiseman ◽  
Jeff Luckstead ◽  
Alvaro Durand-Morat
Keyword(s):  
Exchange Rate ◽  
Exchange Rate Volatility ◽  
The Philippines ◽  
Distributed Lag ◽  
Asian Rice ◽  
Exchange Rate Fluctuations ◽  
Pass Through ◽  
Exchange Rate Pass Through ◽  
The Impact ◽  
Rice Trade

Abstract Asian countries consume approximately 90% of the world’s rice supply. Between 2007 and 2014, Thailand, Vietnam, and India accounted for 60% of the world’s exports of rice. A nonlinear autoregressive distributed lag (NARDL) econometric model is utilized to estimate the impact of exchange rate fluctuations on rice trade in Southeast Asia. Focusing on the largest importing countries and exporting country by volume, the analysis considers Malaysian, Indonesian, the Philippines, and Chinese rice imports from Thailand. Results show that importing countries’ state trading enterprises (STEs) generally do not follow profit-maximizing behavior in reacting to exchange rate volatility.

scholarly journals Exchange Rate Pass-Through in Turkey before and after the Adoption of Inflation Targeting Regime

2017 ◽  
Vol 8 (2) ◽  
pp. 37-48 ◽  
Author(s):  
Özcan Karahan
Keyword(s):  
Exchange Rate ◽  
Inflation Targeting ◽  
Single Equation ◽  
Point Of View ◽  
Turkish Economy ◽  
Before And After ◽  
The Exchange Rate ◽  
Pass Through ◽  
Exchange Rate Pass Through ◽  
The Impact

The impact of exchange rate change on the domestic price level which is called as exchange rate pass through has long been of interest in international economics literature. Along with the application of inflation targeting regime widely, the focus of this interest has also evolved to examine the changes in degree and speed of exchange rate pass through under inflation targeting regime. Turkey, adopted Inflation Targeting (IT) as a monetary regime between 2001 and 2006 implicitly and then explicitly, exhibits which was a genuine experience to be analyzed in this respect. From this point of view, the goal of the study is to provide a time-series analysis of exchange rate pass-through for Turkish economy based on single equation Error Correction Model estimation using the monthly data under pre-IT period 1995-2000 and post-IT period 2006-2014. Thus, we try to clarify the effectiveness of inflation targeting regime as monetary policy on the exchange rate pass-through. The findings of the study indicate that the exchange rate pass-through decreased in the post-IT period compared to pre- IT period. Accordingly, it can be argued that the implication of inflation targeting regime reduced exchange rate pass through in Turkey.

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