EXCHANGE RATE PASS-THROUGH FOR SELECTED ASIAN ECONOMIES

Mun-Heng Toh () and Hwei-Jing Ho
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Mun-Heng Toh: Department of Business Policy, National University of Singapore, 10 Kent Ridge Crescent, Singapore 119260, Singapore
Hwei-Jing Ho: Department of Business Policy, National University of Singapore, 10 Kent Ridge Crescent, Singapore 119260, Singapore

The Singapore Economic Review (SER), 2001, vol. 46, issue 02, 247-273

Abstract: This paper investigates the degree of exchange rate pass-through for the selected Asian countries namely Malaysia, Thailand, Taiwan, and Singapore. Unlike past studies, this paper focuses on small open economies and includes exports of primary commodities in the investigation. We utilize cointegration techniques based on Engle and Granger (1987) and Johansen and Juselius (1990), and error correction modeling, to provide a more robust and rigorous investigation of the long run and short run pass-through of exchange rates. It is found that, in general, the degree of pass-through is high, although there is a small extent of pricing to market found for all countries. For Malaysia, the degree of pricing to market found suggests that there is intense competition in the export industries. In the case of Thailand, there is almost complete pass-through and this conforms to oura prioriexpectations. In the case of Singapore and Taiwan, we detect a higher degree of pass-through compared to past studies. For a country, the high degree of pass-through will support the adoption of more flexible exchange rate oriented monetary policies, and for firms it will reveal the limits of their price setting behavior amidst international competition.

Keywords: Exchange rate pass-through; Cointegration; Pricing to market; Error correction model; Asian economies (search for similar items in EconPapers)
Date: 2001
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DOI: 10.1142/S0217590801000358

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