Measuring Long-Run Exchange Rate Pass-Through

Olivier de Bandt, Anindya Banerjee and Tomasz Kozluk

Working papers from Banque de France

Abstract: The paper discusses the issue of estimating short- and long-run exchange rate pass-through to import prices in euro area countries and reviews some problems with the measures recently proposed in the literature. Theoretical considerations suggest a long-run Engle and Granger cointegrating relationship (between import unit values, the exchange rate and foreign prices), which is typically ignored in existing empirical studies. We use time series and up-to-date panel data techniques to test for cointegration with the possibility of structural breaks and show how the long-run may be restored in the estimation. The main finding is that allowing for possible breaks around the formation of EMU and the appreciation of the euro starting in 2001 helps restore a long run cointegration relationship, where over the sample period the fixed component of the pass-through decreased while the variable component tended to increase.

Keywords: Exchange rates; Pass-through; Import prices; Panel cointegration; Structural break. (search for similar items in EconPapers)
JEL-codes: C23 F14 F31 F36 F42 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2007
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Related works:
Journal Article: Measuring Long-Run Exchange Rate Pass-Through (2008)
Working Paper: Measuring Long-Run Exchange Rate Pass-Through (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:173

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