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

Almukhtar Al-Abri and Barry Goodwin ()

International Review of Economics & Finance, 2009, vol. 18, issue 1, 142-161

Abstract: 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]).

Keywords: Exchange; rate; pass-through; Non-linear; estimation; Threshold; cointegration; Equilibrium; pass-through; OECD (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (36)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:18:y:2009:i:1:p:142-161

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