Exchange Rate Pass-through: The Role of Regime Changes

Douglas Steel and Alan King

International Review of Applied Economics, 2004, vol. 18, issue 3, 301-322

Abstract: We consider the effect on the degree of exchange rate pass-through of the exchange rate regime in operation. We test the hypothesis that pass-through will be lower under a float as firms may be reluctant to pass appreciations or depreciations on to their customers when there is a strong chance that they will be subsequently reversed. Taylor's hypothesis that pass-through will be lower in a low-inflation environment is also considered. Both hypotheses are assessed in relation to the price of manufactured imports into New Zealand and we find that, whereas the shift to a float dramatically lowered the degree of pass-through, the later shift to a low-inflation regime has no significant additional effect on the pass-through relationship.

Keywords: Exchange rate pass-through; inflation; exchange rate regime (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (21)

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DOI: 10.1080/0269217042000227114

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