Exchange rate pass-through: The case of China

This paper studies the degree of the exchange rate pass-through (ERPT) to import and consumer prices in China with both the ratio of China’s imports to GDP and domestic prices of China’s main trade partners going up. Statistic results show that the degree of ERPT is somehow less than the degree of marginal cost plus mark-up pass-through of exporters, and econometric analyses reach the same conclusion. Besides, the ERPT to import prices is found to be high while the ERPT to CPI is low owing to some factors that obstruct the import prices pass-through channel to domestic CPI. But this situation has been changing significantly since August 2005. Thus, a more flexible exchange rate system is needed for China to absorb the price shock from aboard efficiently.     

Invoice currency choice,nonlinearities and exchange rate pass-through

ABSTRACT

Estimating time-varying thresholds as a proxy for exporter’s predicted exchange rates, this study proposes a new approach to analyse possible asymmetric behaviour of exchange rate pass-through (ERPT) or pricing-to-market (PTM) in Japanese exports between yen appreciation and depreciation periods. Constructing the industry-specific nominal effective exchange rate on a contract (invoice) currency basis, we perform the multivariate threshold near-vector autoregressive (near-MTVAR) estimation and reveal a strong tendency of symmetric ERPT in the short-run, between yen appreciation and depreciation periods. From the 2000s, however, Japanese machinery exporters increased the degree of PTM even in the long-run, while other industries raised the degree of long-run ERPT, reflecting the difference of product differentiation across industries. This evidence has significant implications for the recent unresponsiveness of the Japanese trade balance to the large depreciation of the yen.     

Exchange rate pass-through in the Asian countries: does inflation volatility matter?

This paper presents a nonlinear relationship between exchange rate pass-through (ERPT) and inflation volatility. Through the lens of a threshold framework, we uncover a clear evidence of near to one ERPT to consumer prices once inflation volatility crosses a threshold level of 4.17. Clearly, there are significant differences in the degree of ERPT between the high and low inflation volatility in the inflation targeting (IT) and non-IT Asian countries.     

Exchange rate pass through,macro fundamentals and regime choice in Latin America

The impact of changes in exchange rate on inflation is an issue of extreme importance for nations with a history of high inflation. While there have been significant studies on industrial and advanced economies, little analysis has been conducted on smaller economies that are open to trade and financial relationships. This paper estimates exchange rate pass-through (ERPT) into CPI and import prices from 1970 to 2010 for nine Latin American nations. ERPT is further estimated for each decade documenting declining pass-through after the turn of the millennium. The paper also examines the impact of macro fundamentals on ERPT, and finds monetary policy stability, inflation rate and trade openness to have a positive impact on pass-through. Finally, de facto exchange rate flexibility indices are constructed and ERPT rates are found to negatively affect them.     

Data frequency and exchange rate pass-through: Evidence from India's exports

This paper studies the pricing behavior of Indian exporters using both annual and monthly data in order to uncover the role of data frequency in determining variation in the degree of short and long-run exchange rate pass-through (ERPT). Export price data during the post-1991 economic reforms period is disaggregated at the two-digit industry level and using a novel methodology in the ERPT literature (cointegration for heterogeneous panels) cross-industry differences in adjustment are identified. We observe that there is clear evidence of incomplete ERPT to prices in India's export markets, after having controlled for the level of exchange rate volatility and domestic inflation as an indicator of variations in marginal cost. The empirical results indicate that monthly data reflect more incomplete ERPT to destination market prices, relative to annual data, in which all the short run rigidities are more likely to have been adjusted. Thus studies that use higher frequency data are more likely to find incomplete ERPT in the short-run, even in the context of an emerging market economy. In the long-run, incomplete ERPT subsists in a few industries for both data frequencies.     

EXCHANGE RATE REGIMES AND PASS-THROUGH: EVIDENCE FROM THE TURKISH ECONOMY

We seek to demonstrate the variations in the exchange rate pass-through (ERPT) and identify the shift in the price-setting behavior by placing the emphasis on the implemented exchange rate and monetary policy regimes. Having a history of several distinct monetary regimes, Turkey exhibits a genuine laboratory in this respect. Our empirical results reveal that the pass-through from exchange rates to domestic prices has changed dramatically. We detect breaks in the pass-through coefficients at three episodes, all of which coincide with a shift in monetary/exchange rate regime, lending support to the view that monetary and exchange rate regimes might be among the major determinants of the ERPT process . ( JEL C51, E31, E58)     

The First and Second Stage Pass‐through of Exchange Rates: A Developing Country Perspective

This paper investigates the validity of the conventional wisdom that, unlike in developed countries, exchange rate pass‐through (ERPT) should be ‘complete’ for developing economies. To test this hypothesis, we construct new variables as well as original data sets, which are not readily available in the literature, and employ an alternative error correction model technique for a typical small open developing economy—Bangladesh. The transmission of exchange rate movements to import prices is found to be ‘complete’; however, the ‘second stage pass‐through’ is ‘partial’ both in the short and long run. The response of traded goods prices to exchange rate shocks is found to be significant and larger in the long run compared with the short run. Trade liberalization is also a significant phenomenon for ERPT. The analysis has wider applicability to other small open economies.     

Would it have paid to be in the eurozone?

Giving up an independent monetary policy and a flexible exchange rate are the key aspects of joining a monetary union. In this paper we analyse how joining the euro area would have affected the Polish business cycle during the recent financial crisis. To this end we construct a small open economy DSGE model and estimate it for Poland and the euro area. Then we run a counterfactual simulation, assuming Poland's euro area accession in 1q2007. The results are striking — volatilities of GDP and inflation increase substantially. In particular, had Poland adopted the euro, GDP growth would have oscillated between − 6% and + 9% (− 9% to + 11% under more extreme assumptions) instead of between 1% and 7%. We conclude that during the analysed period independent monetary policy and, in particular, the flexible exchange rate played an important stabilizing role for the Polish economy.     

New evidence for exchange rate pass-through: Disaggregated trade data from local ports

For the estimation of exchange rate pass-through (henceforth ERPT), except for some evidence based on firm-level data, even the most disaggregated level of national export data is still biased with aggregation over sub-regions within an exporting country. We investigate to what extent this aggregation within product category is biased by comparing ERPT estimates across local ports. We use monthly exports at the HS 9-digit level from January 1988 to December 2005 for five major Japanese ports. Using a panel data regression framework, we control for exporting industry and importing country. Statistical tests provide strong evidence that export prices are set at different levels across local ports and that they correspond differently with respect to fluctuations of exchange rates.     

The French Revolution and the Creation of Benthamism

Abstract

The article investigates Knut Wicksell's interpretation of aggregate economic fluctuations. It is shown that Wicksell described the business cycle as oscillations of an economy with increasing population and scarce natural resources around its steady growth path ('dynamic equilibrium'), provoked by sporadic technological progress. The ‘shocks’ bring about a wave‐like motion because of psychological and technical lags in the economic structure. Wicksell's suggestion that excess net savings in the depression take the form of stocks of commodities is compared to his contemporaries’ answers to the question ‘What happens to savings during the depression?’ The article also puts forward a relatively neglected connection between Malthus’ and Wicksell's notions of over‐production. Divergences between the natural and market rates of interest — essential to his better‐known ‘cumulative process’ ‐ are not a necessary part of Wicksell's business cycle, but they are important to explain why the upper turning‐point can have the nature of a crisis, which results from wrong expectations induced by cumulative price movements.     

Exchange rate pass-through and inflation targeting in Peru

It has been widely documented that the exchange rate pass-through to domestic inflation has decreased significantly in most of the industrialized world. As microeconomic factors cannot completely explain such a widespread phenomenon, a macroeconomic explanation linked to the inflationary environment—that a low and more stable inflation rate leads to a decrease in the pass-through—has gained popularity. Using a structural VAR framework, this paper presents evidence of a similar decline in the pass-through in Peru, a small open economy that gradually reduced inflation to international levels in order to adopt a fully fledged inflation targeting scheme in 2002. It is argued that the establishment of a credible regime of low inflation has been instrumental in driving the exchange rate pass-through down.     

Re-examining the exchange rate pass-through into import prices using non-linear estimation techniques: Threshold cointegration

We document a significant threshold cointegrating relationship among effective nominal exchange rates and import prices. Using quarterly data for five industries of 16 OECD countries, we find that the degree of pass-through improves dramatically from the 50% average documented in the literature once threshold effects are recognized. The results of our threshold cointegration model show that import prices respond faster and by a larger extent to nominal exchange rate shocks than is the case for more conventional models. These findings give empirical support to the hypothesis that an equilibrium rate of pass-through exists (e.g. [Bacchetta, P., & Van Wincoop, E. (2005). A Theory of the currency denomination of international trade, Journal of International Economics 67, 295–319; Devereux, M., Engel, C., & Storgaard, P. (2004). Endogenous exchange rate pass-through when nominal prices are set in advance, Journal of International Economics 63(2), 263–291]).     

汇率传递：模型说明及文献综述

汇率是开放经济环境下的核心工具变量,在维持一国内部平衡和外部平衡时起着重要的作用。对于汇率传递问题的关注开始于世界由固定汇率体系向浮动汇率体系转变的时期,目前它仍然是关于外部调整研究的重要内容。本文分析了汇率传递与一价定律、依市场定价之间的关系,使用一个汇率传递模型阐明了汇率变动对价格体系的传导机制。汇率变动对商品出口价格和进口价格传递应该是一个连续的过程。当获知汇率发生变动时,出口商在不完全竞争的市场结构下,出于经营目的会调整其对价格的加成,这反应到进口国的进口价格上已经是一种“不完全”的传递;而进口商品由于存在分销过程,在最终销售价格上包含了相当程度的国内不可贸易的服务成本,这部分成本由于不受汇率变动的影响,因此汇率变动对进口价格的传递会进一步被削弱。     

Exchange rate pass-through, menu costs and threshold cointegration

This paper investigates exchange rate pass-through (ERPT) in the presence of menu costs. Assuming exports prices are negotiated in the exporter’s currency, menu costs give rise to two thresholds around (within) which incomplete ERPT is (not) observed. An error correcting process is triggered from a deviation in the ERPT cointegrating relation only when the deviation is large enough in absolute value to fall outside of a band defined by symmetric thresholds. Threshold autoregressive (TAR) cointegration techniques are used to investigate Quebec and Ontario pork meat export prices in the US and Japanese markets. Through Monte Carlo simulations, we find that our Equilibrium-TAR tests have greater power than a standard unit root test. Our empirical application suggests that Canadian pork exporters exercise market power in the US market. The evidence of incomplete ERPT in the Japanese market is weaker and differs across provinces. Evidence of thresholds is reported for both destinations, thus indicating the existence of significant menu costs for Canadian pork exporters in these markets.     

通过人民币升值抑制通胀难以成行

本文利用1995—2010年的月度数据考察了人民币汇率对国内物价水平的影响,结果表明通胀环境对汇率传递起着十分重要的作用,低且稳定的通胀环境对应着低汇率传递效应,高且不稳定的通胀环境下一般有着较高的汇率传递系数。因此,在汇率传递系数逐渐下降的趋势下,要谨慎对待通过人民币升值来降低国内通胀率的政策建议。     

The effect of firm-level productivity on exchange rate pass-through

A heterogeneous-firm trade model can explain the recent decrease in exchange rate pass-through to aggregate US import prices as a result of decreased trade costs. This paper finds support for this explanation by testing another implication of this type of heterogeneous firm model: lower exchange rate pass-through for goods that are traded for short periods of time.     

中国宏观经济形势与政策:2007—2008年

2007年,中国经济保持高速增长与低通货膨胀的良好配合格局,在将核心CPI上涨率控制在2%以下的同时,实现11%以上的实际GDP增长速度。中国宏观经济管理应该在2008年继续实行稳健的财政政策,采取中性的需求管理政策取向,以在总体经济景气进入收缩阶段后延续其繁荣形态。     

Import price dynamics in major advanced economies and heterogeneity in exchange rate pass-through

This article aims at showing heterogeneity in the degree of exchange rate pass-through to import prices in major advanced economies at three different levels: (1) across destination markets; (2) across types of exporters [distinguishing developed economy (DE) from emerging economy (EE) exporters] and (3) over time. Based on monthly data over the period 1991–2007, the results show first that large destination markets exhibit the lowest degree of pass-through. The degree of pass-through for goods imported from EEs is also significantly lower than for those from DEs. Regarding the evolution over time, no clear change in pricing behaviours can be identified and the well-identified decline in the exchange rate pass-through between the 1980s and 1990s appears to have stopped during the period considered.     

The political economy of the impossible trinity

This paper reconsiders the policy trilemma in an open economy by incorporating political economy concerns. We argue that the impact of government ideology on monetary independence, exchange rate stability, and capital flow restrictions should be analyzed in the broader context of restrictions imposed by the impossible trinity instead of the usual single-dimensional constraints. Employing a de facto measurement of these restrictions for a sample of 111 countries from 1980 to 2010, we show that the impact of government ideology on a country's position in this trilemma is highly context dependent: we find that its impact on exchange rate stability and monetary independence varies between developed and developing countries. We also show that the impact of government ideology on these two trilemma components is contingent on the stance of the respective economy's business cycle. Left-leaning governments seem to favor exchange rate stability over monetary independence in case of a negative output gap; suggesting a reversal of their commonly assumed partisan preferences in economically tight times.     

Learning by doing,organizational forgetting,and the business cycle

This paper supplements a learning-by-doing real business cycle model with endogenous organizational forgetting. Empirical evidence shows that the accumulated experience decay rate is not constant over the business cycle, but that forgetting is a function of economic activity. Learning reinforces the effects of productivity shocks, and organizational forgetting exacerbates their impact and increases their persistence. This is of particular interest when a negative productivity shock hits the economy, as the increasing speed of forgetting aggravates the negative shock and delays recovery.