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

January 1, 2004

Preview Citation

Format: Chicago

Hamid Faruqee. Exchange Rate Pass-Through in the Euro Area: The Role of Asymmetric Pricing Behavior, (USA: International Monetary Fund, 2004) accessed December 24, 2024

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.

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

Publication Details

Pages:

27
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2004/014
Stock No:

WPIEA0142004
ISBN:

9781451843156
ISSN:

1018-5941

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