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Exchange Rate Pass-Through for Australian Manufactured Imports: Estimates from the Johansen Maximum-Likelihood Procedure

Jayant Menon ()

Centre of Policy Studies/IMPACT Centre Working Papers from Victoria University, Centre of Policy Studies/IMPACT Centre

Abstract: This paper estimates exchange rate pass-through for Australian manufactured imports by applying an econometric procedure which avoids the pit-falls in previous studies to a carefully assembled data set. For the first time, we provide estimates of pass-through based on the Johansen (1988) ML procedure. Our finding of incomplete pass-through has important implications for policy and the macroeconomy. Incomplete pass-through brings into question the validity of the "small" country assumption and the exogeneity of the terms of trade with respect to exchange rate changes. We may also have to reconsider the extent of the apparent inflationary (deflationary) consequences of exchange rate depreciations (appreciations), and the effects of exchange rate variability on international trade flows.

JEL-codes: F31 (search for similar items in EconPapers)
Date: 1993-07
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