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Title:Measuring Long-Run Exchange Rate Pass-Through PDF Logo
Authors:de Bandt, Olivier
Banerjee, Anindya
Kozluk, Tomasz
Issue Date:2007
Series/Report no.:Economics Discussion Papers / Institut für Weltwirtschaft 2007-32
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.
Subjects:exchange rates
pass-through
import prices
panel cointegration
structural break
JEL:F42
F36
F31
F14
C23
Creative Commons License:http://creativecommons.org/licenses/by-nc/2.0/de/deed.en
Document Type:Working Paper
Appears in Collections:Economics: The Open-Access, Open-Assessment E-Journal - Discussion Papers

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