Impact of exchange rate shock on prices of imports and exports

Jarita Duasa ()

MPRA Paper from University Library of Munich, Germany

Abstract: This study examines the significant impact of exchange rate shock on prices of Malaysian imports and exports. In methodology, the study adopts vector error correction (VECM) model using monthly data of nominal exchange rates, money supply, prices of imports and prices of exports covering the period of M1:1999 to M12:2006. For further analysis, we adopt an innovation accounting by simulating variance decompositions (VDC) and impulse response functions (IRF). VDC and IRF serve as tools for evaluating the dynamic interactions and strength of causal relations among variables in the system. In fact, IRF is used to calculate the exchange rate pass-through on import prices and export prices. The findings indicate that, while the exchange rate shock is significantly affect the fluctuation of import prices, the degree of pass-through is incomplete.

Keywords: Import prices; Export prices; VECM; Impulse Response; Variance Decomposition (search for similar items in EconPapers)
JEL-codes: C22 E30 F31 (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-ifn, nep-mac, nep-opm and nep-sea
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:11624

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