Exchange Rate Pass-Through in the Euro Area: The Role of Asymmetric Pricing Behavior
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Summary:
Exchange rate pass-through in a set of euro area prices along the pricing chain is examined. Using a vector autoregression (VAR) approach, the empirics analyze the joint time-series behavior of the euro exchange rate and a system of euro-area prices in response to an exchange rate shock. The impulse-response functions from the VAR estimates are used to identify-in a 'new open economy macroeconomics model'-those key behavioral parameters that best replicate the pattern of exchange rate pass-through in the euro area. Area-wide prices are found to display incomplete pass-through, consistent with euro currency-pricing and pricing-to-market behavior. The results are compared to those for the other major industrial economies, and suggest that, as with the United States, "expenditure-switching" effects on the current account still operate but are generally small.
Series:
Working Paper No. 2004/014
Subject:
Currencies Econometric analysis Exchange rates Export prices Foreign exchange Import prices Money Prices Vector autoregression
English
Publication Date:
January 1, 2004
ISBN/ISSN:
9781451843156/1018-5941
Stock No:
WPIEA0142004
Pages:
27
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