Exchange Rate and Consumer Prices in the Euro Area: A Cointegrated VAR Analysis

Nidhaleddine Ben Cheikh ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper analyzes the exchange rate pass-through (ERPT) into consumer prices for 12 EA countries within a CVAR framework. Using the Johansen cointegration procedure, results indicate the existence of one cointegrating vectors at least for each EA country of our sample. When measuring the long-run effect of exchange rate changes on consumer prices, we found a wide dispersion of ERPT elasticities, especially between “peripheral” and “core EA” economies. For instance, consumer prices rise by 84% in Portugal following one percent depreciation of exchange rate, while for the German economy the extent of pass-through is not exceeding 0.20%. Besides, the loading factors point out a very slow adjustment of consumer prices towards their long-run equilibrium across EA countries. This would explain the weakness of ERPT estimates in the short-run.

Keywords: Exchange Rate Pass-Through; Inflation; Cointegration (search for similar items in EconPapers)
JEL-codes: C32 E31 F31 (search for similar items in EconPapers)
Date: 2013-10
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Citations: View citations in EconPapers (1)

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https://mpra.ub.uni-muenchen.de/53250/1/MPRA_paper_53250.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/59476/1/MPRA_paper_59476.pdf revised version (application/pdf)

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