Exchange Rate Pass-Through in the Euro Area: The Role of Asymmetric Pricing Behavior
IMF Working Papers, January 1, 2004
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- Exchange Rate Pass-Through in the Euro Area: The Role of Asymmetric Pricing Behavior
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Bibliographic details
- Authors: Hamid Faruqee
- Published: January 1, 2004
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451843156.001
Summary and Research Question
- Examines exchange rate pass-through in a set of euro area prices along the pricing chain.
- Uses a vector autoregression (VAR) approach to 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.
- Uses impulse-response functions from the VAR estimates to identify—in a "new open economy macroeconomics model"—the key behavioral parameters that best replicate the pattern of exchange rate pass-through in the euro area.
Methodology
- Empirical framework: Vector autoregression (VAR).
- Identification strategy: Impulse-response functions from VAR estimates mapped to parameters in a New Open Economy Macroeconomic Model.
- Price concepts analyzed: a set of euro area prices along the pricing chain (area-wide prices, export prices, import prices, destination prices, trade prices).
Key Findings
- Area-wide prices display incomplete pass-through.
- Incomplete pass-through is consistent with euro currency-pricing and pricing-to-market behavior.
- Comparison with other major industrial economies indicates similarity to the United States in that "expenditure-switching" effects on the current account still operate but are generally small.
Subject Areas and Keywords (as provided)
- Subject: Currencies, Econometric analysis, Exchange rates, Export prices, Foreign exchange, Import prices, Money, Prices, Vector autoregression
- Keywords: area price, Currencies, destination price, euro, euro area firm, exchange rate, Exchange Rate Pass-Through, exchange rate shock, Exchange rates, Export prices, factor price, Global, Import prices, incomplete pass-through, New Open Economy Macroeconomic Models, pass-through, pass-through effect, pass-through elasticity, pass-through model, pass-through rate, price, price response, trade price, Vector autoregression, WP