Exchange Rate Pass-Through in the Euro Area: The Role of Asymmetric Pricing Behavior

Hamid Faruqee

No 2004/014, IMF Working Papers from International Monetary Fund

Abstract: Exchange rate pass-through in a set of euro area prices along the pricing chain is examined. Using a vector autoregression (VAR) approach, the empirics analyze the joint time-series behavior of the euro exchange rate and a system of euro-area prices in response to an exchange rate shock. The impulse-response functions from the VAR estimates are used to identify-in a 'new open economy macroeconomics model'-those key behavioral parameters that best replicate the pattern of exchange rate pass-through in the euro area. Area-wide prices are found to display incomplete pass-through, consistent with euro currency-pricing and pricing-to-market behavior. The results are compared to those for the other major industrial economies, and suggest that, as with the United States, "expenditure-switching" effects on the current account still operate but are generally small.

Keywords: WP; price; pass-through; exchange rate; euro; Exchange Rate Pass-Through; New Open Economy Macroeconomic Models; pass-through elasticity; destination price; price response; pass-through model; area price; exchange rate shock; pass-through effect; incomplete pass-through; pass-through rate; trade price; factor price; euro area firm; Exchange rates; Import prices; Export prices; Vector autoregression; Currencies; Global (search for similar items in EconPapers)
Pages: 27
Date: 2004-01-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (36)

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