Heads I Win, Tails You Lose: Asymmetry in Exchange Rate Pass-Through Into Import Prices

Journal of the Royal Statistical Society (A) - Forthcoming

33 Pages Posted: 11 Dec 2013 Last revised: 1 Jun 2016

See all articles by Raphael Brun-Aguerre

Raphael Brun-Aguerre

J.P. Morgan Chase & Co.

Ana-Maria Fuertes

Cass Business School, City University of London

Matthew Greenwood-Nimmo

University of Melbourne; Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA)

Date Written: May 25, 2016

Abstract

We analyze exchange rate pass-through into import prices for a large group of 33 emerging and developed economies from 1980Q1 to 2010Q4. 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.

Keywords: Exchange Rate Pass-Through; Asymmetry; Nonlinear ARDL Model; Random Coefficients Panel Data Model; Emerging Markets

JEL Classification: F10; F14; F30; F31

Suggested Citation

Brun-Aguerre, Raphael and Fuertes, Ana-Maria and Greenwood-Nimmo, Matthew, Heads I Win, Tails You Lose: Asymmetry in Exchange Rate Pass-Through Into Import Prices (May 25, 2016). Journal of the Royal Statistical Society (A) - Forthcoming, Available at SSRN: https://ssrn.com/abstract=2365275 or http://dx.doi.org/10.2139/ssrn.2365275

Raphael Brun-Aguerre

J.P. Morgan Chase & Co. ( email )

60 Wall St.
New York, NY 10260
United States

Ana-Maria Fuertes

Cass Business School, City University of London ( email )

Faculty of Finance
106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44 207 477 0186 (Phone)
+44 207 477 8881 (Fax)

HOME PAGE: http://www.city.ac.uk/people/academics/ana-maria-fuertes

Matthew Greenwood-Nimmo (Contact Author)

University of Melbourne ( email )

185 Pelham Street
Carlton, Victoria 3053
Australia

Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA) ( email )

ANU College of Business and Economics
Canberra, Australian Capital Territory 0200
Australia

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