Long Run Exchange Rate Pass-Through: A Panel Cointegration Approach

Nidhaleddine Ben Cheikh ()

No 78, FIW Working Paper series from FIW

Abstract: This paper examines the extent and evolution of exchange rate pass-through (ERPT) using panel cointegration approach. For 27 OECD countries, we provide a strong evidence of incomplete ERPT in sample of 27 OECD countries. Both FM-OLS and DOLS estimators show that pass-through elasticity does not exceed 0.70%. When considering individual estimates, we note a cross-country differences in the long run ERPT. We find that inflation regime and exchange rate volatility are potential macroeconomic sources of this long-run heterogeneity. When focusing on the subsample of 12 European Monetary Union (EMU) countries, our results show a steady decline in the degree of ERPT throughout the different exchange rate arrangements: pass-through elasticity was close to unity during the "snake-in-the tunnel" period while it is about 0.50% since the formation of the euro area. The observed decline in ERPT to import prices was synchronous to the shift towards reduced inflation regime.

Keywords: Exchange Rate Pass-Through; Import Prices; Nonstationary Panel data (search for similar items in EconPapers)
JEL-codes: C23 E31 F31 F40 (search for similar items in EconPapers)
Pages: 41
Date: 2012-04
New Economics Papers: this item is included in nep-mon and nep-opm
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Citations: View citations in EconPapers (2)

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