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Exchange Rate Pass-Through in the Euro Area: The Role of Asymmetric Pricing Behavior

Author/Editor: Faruqee, Hamid
Authorized for Distribution: January 1, 2004
Electronic Access: Free Full Text (PDF file size is 352KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

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.
 
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Series: Working Paper No. 04/14
Subject(s): Exchange rates | Prices | Economic models
Author's keyword(s): Exchange Rate Pass-Through | New Open Economy Macroeconomic Models
 
English  
    Published:   January 1, 2004        
    ISBN/ISSN:   1934-7073   Format:   Paper
    Stock No:   WPIEA0142004   Pages:   26
    Price:   US$15.00 (Academic Rate: US$15.00 )
       
     
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