Rozprawy doktorskie na temat „Exchange rate pass through”

This dissertation contributes to the theoretical and empirical understandings of international transmissions of exchange rate shocks. It consists of three chapters. The first chapter extends Corsetti and Dedola (2005) and further allows for competition in retail networks. In the model, there are four types of firms interacting with each other including retailing manufacturers, non-retailing manufacturers, specialised retailers and nontradable good producers. The equilibrium depends on the interaction among these four types of firms, which leads to a dynamic and incomplete exchange rate pass through (ERPT) depending on the firms’ share of retail networks. With the standard calibration, the model can generate a high (4-5) long-run trade elasticity without conflicting with a low (0.5-1) short-run elasticity, suggesting that the dynamics of retail networks offer a potential explanation of the trade elasticity puzzle. Chapter 2 investigates the ERPT of Chinese exporters. We propose an estimator that utilises orthogonal dimensions to control for unobserved marginal costs and estimate destination specific markup adjustments to bilateral and multilateral exchange rate shocks. Our estimates suggest that the cost channel accounts for roughly 50% of conventional EPRT estimates. We offer new channels of heterogeneity in firms’ pricing behaviour and provide supporting evidence on the international pricing system. Chapter 3 aims to bridge the gap between theoretical and empirical works on ERPT. I propose a machine learning algorithm that systematically detects the determinants of ERPT. The proposed algorithm is designed to work directly with highly disaggregated firm-level customs trade databases as well as publicly available commodity trade flow datasets. Tested on the simulated data from a realistic micro-founded multi-country trade model, my algorithm is proven to have accuracies around 95% and 80% in simple and complex scenarios respectively. Applying the algorithm to China’s customs data from 2000 to 2006, I document new evidence on the nonlinear relationships among market structures, unit value volatility and ERPT.

This thesis examines the effect of exchange rates on stock returns and domestic prices. Specifically, it comprises three essays which are two essays on exchange rate exposure and one essay on exchange rate pass-through. In Chapter Two the first essay presents a comprehensive treatment of exchange rate exposure across a large sample of 3,015 firms from 5 ASEAN economies for the period 2002-2012. We adopt the OLS framework of Jorion (1990) as a benchmark model and the GMM approach of Chue and Cook (2008), with the latter having the advantage of abstracting from the effects of the wider macroeconomic environment. Estimated by the OLS method, our findings yield country specific results with regards to firm value confirming the prevailing view that the value of Asian firms decreases when their local currency depreciates. However, on application of the GMM approach the average exchange rate exposure of nonbank and bank in Indonesia and Thailand overturn the OLS results yielding positive coefficients. Also, the one-lagged exchange rate can explain exchange rate exposure in some cases; this effect is likely to be country specific. According to the different business characteristics, a bank sub-dataset indicates that the foreign exposure of Asian banks shows a greater degree of exposure than nonbank companies do. In Chapter Three the second essay examines transaction and economic exchange rate exposure, and contributes by adopting a transformed regression method that is robust to the econometric problem of data overlapping. The transformed regression method is combined with rolling-window regression in order to examine the time variation in exchange rate exposure in four main industrialised economies during the period of 1990-2012. We find evidence that the firms that are significantly exposed to long-run exchange rate movements reduce by approximately seventy percent at a horizon of 5 years when estimated by the transformed regression method. Our findings also show the effect of the recent global financial crisis on the relationship between exchange rates and firm returns. In Chapter Four the final essay investigates the effect of inflation targeting on the rate of exchange rate pass-through (ERPT). Our ERPT model is based on new open-economy macroeconomics theory but is extended using the nonlinear and asymmetric distributed lags (NARDL) framework, which is suitable in examining asymmetric ERPT under different inflationary regimes. After an adoption of inflation targeting, our evidence reveals that the asymmetric zero pass-through is mainly captured in the long-run, particularly, in emerging countries. By contrast, symmetric zero pass-through is robust for all countries in the short-run. This suggests that asymmetries of depreciation and appreciation have no noticeable impact on consumer prices after central banks pursue inflation targeting. This phenomenon might be explained by the effectiveness of inflation targeting implementation.

In this study, we aim to investigate the impact of inflation targeting (IT) and the recent global disinflation on exchange rate pass-through (ERPT) using quarterly data from 1980:1 to 2009:1 for 51 industrial and emerging market (EM) countries. To this end, we employ not only the conventional panel data estimation methods but also the recent Common Correlated Effects Pooled estimation procedure by Pesaran (2006) which allows estimating the impact of common global shocks such as global inflation. We also explore some other determinants of ERPT during the recent global disinflation period. Furthermore, we consider asymmetric effects of positive and negative output gaps as proxies for domestic demand conditions on ERPT for IT industrial and EM countries. Our results strongly suggest that, for the non-IT samples, ERPT is significantly higher in EM countries than industrial countries. For every country groups excluding Euro area countries, we find that ERPT declined substantially during the recent global disinflation period. The decline in the ERPT is, however, much higher in IT countries especially in EM ones. One striking result is the convergence of ERPT coefficients of EM countries to industrial IT countries with the adoption of IT. This supports the endogenous response of ERPT to monetary policy credibility and price stability. Consequently, a high ERPT, per se, may be interpreted as not a binding constraint for the adoption of IT as it tends to decline with the success of monetary policy regime. We also find that ERPT appears to be more sensitive to positive output gaps in IT industrial countries whilst it does not have such a response to positive or negative output gaps in IT emerging market countries.

In this study, determinants and the evolution of the exchange rate passthrough to domestic inflation in the Turkish economy is analyzed. The analyses cover the 1987-2003 period. In the analyses, single equation &ldquo
Error Correction Models&rdquo
are used to estimate the exchange rate pass-through. Estimation results suggest that alike other emerging countries, the degree of exchange rate passthrough to domestic prices is high and the pass-through is completed in a very short time span. Estimations results also indicates that the main factors to account for high pass-through are the past currency crises and the high degree of openness of the economy. These factors create the ground for the indexation behavior of agents. Although, above-mentioned factors are the main determinants of the degree of exchange rate pass-through, the persistency and the volatility of exchange rates can significantly affect the short run dynamics of the pass-through. The results imply that even if the pass-through slows down due to the changing pattern of exchange rates, to achieve the low and stable inflation in the long run, fundamental factors that exacerbate the link between exchange rates and prices should change.

This study investigates the degree of exchange rate pass-through to prices in different sectors for Turkish economy using Johansen Cointegration procedure. The study is based on quarterly data from 1994:1 to 2003:4. In this study it is concluded that the long-run exchange rate pass-through to overall wholesale prices for Turkey is very high and nearly complete. High pass-through degrees are also valid for different sub-sectors wholesale prices like private, public, manufacturing industry and energy. Moreover, it is detected that the prices set by public sector have higher exchange rate pass-through but longer adjustment period as compared to private sector prices.

In 1993, Kenya liberalised its trade policy and allowed the Kenyan Shillings to freely float. This openness has left Kenya's domestic prices vulnerable to the effects of exchange rate fluctuations. One of the objectives of the Central Bank of Kenya is to maintain inflation levels at sustainable levels. Thus it has become necessary to determine the influence that exchange rate changes have on domestic prices given that one of the major determinants of inflation is exchange rate movements. For this reason, this thesis examines the magnitude and speed of exchange rate pass-through (ERPT) to domestic prices in Kenya. In addition, it takes into account the direction and size of changes in the exchange rates to determine whether the exchange rate fluctuations are symmetric or asymmetric. The thesis uses quarterly data ranging from 1993:Ql - 2008:Q4 as it takes into account the period when the process of liberalization occurred. The empirical estimation was done in two stages. The first stage was estimated using the Johansen (1991) and (1995) co integration techniques and a vector error correction model (VECM). The second stage entailed estimating the impulse response and variance decomposition functions as well as conducting block exogeneity Wald tests. In determining the asymmetric aspect of the analysis, the study followed Pollard and Coughlin (2004) and Webber (2000) frameworks in analysing asymmetry with respect to appreciation and depreciation and large and small changes in the exchange rate to import prices. The results obtained showed that ERPT to Kenya is incomplete but relatively low at about 36 percent in the long run. In terms of asymmetry, the results showed that ERPT is found to be higher in periods of appreciation than depreciation. This is in support of market share and binding quantity constraints theory. In relation to size changes, the results show that size changes have no significant impact on ERPT in Kenya.

Thesis advisor: Georg Strasser
Exchange Rate Pass Through (ERPT) is the percentage change in a destination country’s import price given a percentage change in the exchange rate. A complete ERPT occurs when import price decreases by the same percentage as the depreciation of the exporting country’s currency and vice versa. In this paper I analyze ERPT in large and small open economies, and hypothesize that as destination economy size gets larger, ERPT will decrease. Reasons I provide to support this hypothesis are: the import share of exporters in destination economies, the demand elasticity that foreign exporters face, and the proportion of consumer demand to world demand that the foreign exporter faces. I find, with statistical significance, that ERPT decreases as the destination economy size increases. The main reason attributed to this inverse relationship is the import share of foreign exporters in destination economies. As import share of the foreign exporter increases, ERPT increases within those destination economies. Since foreign exporters have a higher chance of establishing a large import share in small economies than in large economies, they have a better chance of passing through exchange rate changes into destination country prices
Thesis (BA) — Boston College, 2011
Submitted to: Boston College. College of Arts and Sciences
Discipline: Economics Honors Program
Discipline: Economics

Magister Commercii - MCom
This mini-thesis examines the speed and magnitude of exchange rate pass-through to domestic prices in South Africa. The shift from fixed exchange rate regimes to a system of floating exchange rates by many countries after the collapse of the Bretton Woods system increased the role of the exchange rate in the determination of inflation. In theory, exchange rate depreciation causes inflation via a process called exchange rate pass-through (ERPT). The effect of exchange rate variations on inflation is of special interest to policy makers especially for countries under inflation targeting regimes. The knowledge of the speed and magnitude of ERPT to domestic inflation (import, producer and consumer inflation) is important in the designing of an optimal monetary policy mix which is needed to ensure price stability. South Africa is one of the countries that moved to an inflation targeting regime under a system of a floating exchange rate. This study therefore aims to empirically determine the speed and magnitude of ERPT to domestic prices in the short run and long run using VAR and VEC models. The empirical results show that ERPT to import prices is immediate and moderately high reaching a peak of about 45% and 47% within three quarters for the VAR and VEC models respectively. In contrast, ERPT to producer and consumer prices is gradual and low. For instance, long-run ERPT is below 30% for producer prices and around 20% for consumer prices. Moreover, the results indicate a high pass-through (above 75%) of producer price shocks to consumer prices. In sharp contrast, the extent of pass-through of import price shocks to consumer prices as reported in the VECM is low at approximately 10% in the short run and declining to approximately 2% in the long run.
National Research Foundation (NRF)

This work is focused on econometric analysis of inflation in the Czech Republic, there is also reported an analysis of inflation in Austria and continuity of both countries to the dominant German economy. The inflation with its forms and possibilities of measuring is described in the first part of this work. There is also mentioned the influence of Czech national bank on the inflation. Next, there is shown the impact of foreign exchange rates and inflation. Consequently there are described characteristics of time series, which are important from viewpoint of construction of econometric models. Next, there is described theory of econometrics analysis, focused on ordinary least squares method and method of instrumental variables. The empirical part contains econometric analysis of inflation itself, using models described in theoretical part. Moreover, this work includes other models, coming out of economic hypothesis. Firstly, it analyses inflation in Germany as the reference country. Secondly, further analysis performs inflation in the Czech Republic and Austria. Finally, an analysis based on ERPT (exchange rate pass-through) models is given. In conclusion, the results are well summarized and compared.

Expectations regarding the relationship between exchange rates and the prices of traded goOds in small open economies have traditionally been derived from the idea of the relative unimportance of a single small country when trading in much larger international markets. This concept has led to the use of distinct 'small-country' or 'dependent-economy' models to analyse the effects of macroeconomic changes. Thus for small economies like Australia, it is usually assumed that the foreign-currency prices of traded goods are fixed in perfectly competitive international markets. Accordingly, exchange rate movements must be completely absorbed in domestic-currency prices. In other words, the pass-through of exchange rate changes to destination-currency prices must be zero for Australian exports, and complete for Australian imports. Such expectations regarding the degree of exchange rate pass-through contrast sharply with those found in conventional macroeconomic models for large countries, in which pass-through is assumed to be complete for all traded goods. Moreover, they conflict with the results derived from the large theoretical and empirical literature on the microeconomic determinants of pass-through, which suggests that much international trade takes place in imperfectly competitive markets, in which the degree of less-than-complete pass-through depends on industry-specific factors. This study explores these apparent conflicts by re-examining the small-country assumption, with particular emphasis on export prices as the area of greatest divergence. Specifically, it addresses three research questions: 1) What are the theoretical conditions that underlie the small-country assumption? 2)What are the implications for the macroeconomic models of small economies if this assumption is violated? 3) In practice, is the data more consistent with the validity or otherwise of the assumption? The analysis focuses on Australia as a practical example of a small open economy with a high proportion of commodity exports. In summary, the theoretical and empirical results reported in this study suggest that the small-country assumption is unlikely to hold in practice. That is, exchange rate pass-through is more likely to be determined by industry-specific factors, rather than by the universal conclusion of zero pass-through for all Australian exports that is derived from the small-country assumption. Further, they imply that the movement in internal prices required to restore equilibrium in a small country following an external shock is likely to be both larger and more uncertain than has previously been expected. Under such circumstances, the full flexibility of the exchange rate, as the primary and most rapid source of the required adjustments, becomes particularly significant. An important policy implication for small open economies that are subject to frequent terms of trade shocks, such as Australia, is that attempts to manage the exchange rate in order to reduce apparently excessive movements may in fact result in a longer and more protracted process of adjustment through the labour market.

The focus of the thesis is on the role of exchange rates in price setting and consequentially nominal price stickiness. A data set was constructed of individual product lines that were imported to the UK, together with competitive product lines. The empirical results showed that the impact of competitive products is significant and for one of the five products selected the pass through of exchange rates into prices was insignificantly different from zero, one passed a proportion of the exchange rate changes into price adjustments and three adjusted prices in such a way as to reinforce the exchange rate changes. A multi period pricing model was postulated, drawing on the work of Ball and Mankiw (1994) but extending it to allow exchange rates shocks to impact a firm's costs in both its home country and its export market. This model shows when temporary shocks will not be passed through and provides a rationale why permanent shocks might also not be passed through. Two further empirical studies were carried on a wider range of products. The first was conducted on imports from major trading partners of the UK. The results were based on aggregated data but showed a very similar picture to the initial product line study. The second study focused on UK exports to the same group of countries using similar products ranges to the import study. The results again showed a similar picture and further for a majority of individual countries, where there was a significant level of pass through, the sign of the exchange rate pass through changed dependent upon whether the country was importing or exporting. Indicating that a country's responsiveness to exchange rate shocks is an important determinant of firm's pricing decisions. Finally these studies provide further evidence that nominal price stickiness is evident in the UK economy.

PONTIFÍCIA UNIVERSIDADE CATÓLICA DO RIO DE JANEIRO
COORDENAÇÃO DE APERFEIÇOAMENTO DO PESSOAL DE ENSINO SUPERIOR
CONSELHO NACIONAL DE DESENVOLVIMENTO CIENTÍFICO E TECNOLÓGICO
PROGRAMA DE SUPORTE À PÓS-GRADUAÇÃO DE INSTS. DE ENSINO
Este trabalho pretende, por meio de um modelo de equilíbrio geral com dois países, mostrar que o coeficiente de repasse cambial (ERPT) deve ser usado com cautela para orientação da política macroeconômica. Não só as suas condições de identificação são bastante restritivas (aumentando a chance de serem usadas hipóteses erradas na estimação) como ele não consegue relacionar movimentos da taxa de câmbio e preços de importados: dependendo da origem do choque uma apreciação cambial pode estar associada tanto a um aumento como a uma diminuição desses preços e, se a curva de oferta do produtor sofre choques, o coeficiente de ERPT já não é mais identificado sob as hipóteses de mínimos quadrados ordinários (o procedimento de estimação mais comum nesta literatura). Portanto, além de ser de difícil estimação, a valia do coeficiente de ERPT como regra de bolso para a política econômica é bastante questionável. Todavia, este estudo mostra que os erros cometidos pelo uso do coeficiente como regra de bolso podem ser bastante mitigados se a sua estimativa estiver condicionada à origem do choque gerador do movimento cambial. Além disso, a investigação de técnicas alternativas de estimação (via função de resposta ao impulso, por exemplo) pode ser um caminho para resolver o problema de identificação.
This paper uses a two-country model to show that the exchange rate pass-through (ERPT) coefficient must be used with reservation as a guide to macroeconomic policy. Not only its identification conditions are very restrictive (which increases the chances of assuming wrong hypotheses for its estimation) but it also cannot associate movements of exchange rates and import prices: depending on the origin of the shock an exchange rate devaluation is followed by an import prices increase or decrease. Furthermore, if the supply curve is subject to exogenous shocks the ERPT is not identified under the general assumptions of ordinary least squares (the most usual estimation procedure used in the literature). As a result, the ERPT is difficult to estimate and not much valuable as a rule of thumb for economic policy. However, this work shows the errors of using the ERPT as a rule of thumb are mitigated when its estimates are conditional on the source of the economic shock. Also, the investigation of alternative estimation techniques (using impulse-response matching, for instance) may solve the identification problem.

There are four chapters in my dissertation. Chapter one gives a brief introduction of the three essays. Chapter two empirically analyzes the interaction among conventional monetary policy, foreign exchange intervention and the exchange rate in a unifying model for Japan. I have several findings. First, the results lend support to the leaning-against-the-wind hypothesis. Second, conventional monetary policy has as great influence on the exchange rate as foreign exchange intervention in Japan. Third, intervention in Japan is ineffective or may be counter-effective, so escaping liquidity trap by intervention alone may not be a feasible way. Chapter three empirically identifies the sources of exchange rate movements of Japan vis--vis the US, and investigates the role of the exchange rate in the macro economy adjustment. It finds that real shocks dominate nominal shocks in explaining the exchange rate movements, with relative real demand shocks as the major contributor. And the exchange rate market does not create many shocks. The overall result supports that the bilateral exchange rate in Japan is a shock-absorber rather than a source of shock. Chapter four provides cross-country and time-series evidence on the extent of exchange rate pass-through at different stages of distribution - import prices, producer prices and consumer prices - for eight major industrial countries: United States, Japan, Canada, Italy, UK, Finland, Sweden and Spain. I find exchange rate pass-through incomplete in many horizons, though complete pass-through is observed occasionally. The degree of pass-through declines and time needed for complete pass-through lengthens along the distribution chain. Furthermore, I find that a greater pass-through coefficient is associated with an economy that is smaller in size with higher import shares, more persistent and less volatile exchange rate shocks, more volatile monetary shocks, higher inflation rate, and less volatile GDP.

In this study, exchange rate pass-through into the export prices and import prices is analyzed separately at the disaggregate level. The study also attempts to differentiate exchange rate pass-through in the short-run and long-run. To analyze pass-through in the short-run, dynamic modeling is used. To analyze pass-through in the long-run, cointegration analysis is conducted. Estimation results show that exchange rate pass-through into the import prices is complete even at the disaggregate level. However, there is variation in the pass-through into the export prices across sectors both in the short-run and long-run. Not all exporting sectors, even in a small open economy like Turkey, are price takers in the foreign markets.

In the beginning of 1990s Sweden implemented several measures in order to maintain price stability. These measures have resulted in an environment in which inflation is lower and more stable. The same development could be seen in other OECD countries. At the same time a decrease in exchange rate pass-through was noticed in many countries. This has led researchers to believe that there may be a connection, between these two phenomena. This dissertation analyzes whether there has been any change in exchange rate pass-through for manufacturing products in Sweden between the high inflation period (1977-1993) and the low inflation period (1994-2006). The result shows that there is a difference in the exchange rate pass-through between the two periods. During the low inflation period the degree of pass-through was lower than during the high inflation period.

This thesis examines the role of exchange rate fluctuations on prices of automobiles imported into Canada over the period 1980(0)-1990(4). The theoretical model is motivated by the desire to synthesize existing models which only identify portions of incomplete exchange rate pass-through. The model captures general demand and supply influences by defining a rational expectations, dynamic optimization problem, with firms maximizing profits with respect to prices, subject to linear demand curves and quadratic adjustment costs. An extension to the model accounts for the possibility of strategic price interaction between competitors and, equally important, nests the original model. The model also strengthens the link between theoretical foundations and empirical estimation by providing a natural framework for recent econometric developments. In particular, favourable unit root and cointegration tests permit the theoretical model to be respecified as an error correction model (ECM) such that long-run equilibrium relationships can be separated from the short-run dynamics of a system. Following the theoretical foundations, each of the three separate automobile classifications (subcompact, compact/midsize, and large) is estimated using a traditional econometric approach, the Engle-Granger two-step procedure, and a Johansen (1991) /vector autoregressive (VAR) approach. Overall, results indicate that, regardless of the econometric methodology, U.S. automobile exporters pass through the largest amount of a change in exchange rates, followed in order by Germany and Japan. Knetter (1993) presents evidence to suggest little difference in pricing behaviour within common industries. Gross and Schmitt (1993) argue that the degree of pricing-to-market (PTM) varies across automobile sectors but remains similar within a given category. This thesis goes one step further and argues that pricing behaviour is different even within categories. Finally, in ranking the econometric techniques in terms of "best fit", under the assumption that the Johansen procedure identifies cointegrating vectors, the Johansen/VAR methodology produces ECMs with greater parameter stability, lower probability of model misspecification and better forecasting ability.

This thesis examines potential time variance of the Pricing-to-market (PTM) and Exchange rate pass-through (ERPT) from both theoretical and empirical perspectives. We argue that the response of the export and import prices to the exchange rate is time dependent. We develop three models that justify the inconstancy of the PTM and ERPT. The first model represents a partial equilibrium theoretic framework where the existence of the cost of switching between substitutes generates structural breaks in the ERPT parameters. This model is subsequently tested by applying the threshold regression framework of Hansen (1999) to data on the US imports from selected European economies. The second model is a partial equilibrium model of export pricing where consumers dislike price volatility. Through solving the firm’s profit maximization problem we show that the volatility of the exchange rate undermines the stability of the response of the export price to currency movements. This model is tested using data on the UK exports to the EU and four out-of-sample forecasting tests, namely fixed, rolling, recursive and random walk coefficient time varying parameter regressions. The third model represents a dynamic stochastic general equilibrium model with subsistence points in consumption and investment. It features two countries and two types of firm – local currency pricing and producer currency pricing. Through maximizing the household’s utility and firms’ profits we show that the extent of the PTM and ERPT is time varying and depends on the unstable response of the mark-up of price over the marginal cost to currency movements. In order to illustrate the inconstancy of the mark-up for both firm types, we compute the impulse responses of the mark-ups to positive shocks to consumer preferences and production technology. Our findings on the time variance of the PTM and ERPT have important policy implications. Since the degree of the PTM and ERPT into import prices affects the extent of the rise of the domestic price level following the devaluation of the domestic currency, monetary policy should consider potential time evolution of the PTM and ERPT in order to control inflation.

The fact that South Africa has a floating exchange rate policy as well as an open trade policy leaves the country’s import, producer and consumer prices susceptible to the effects of exchange rate movements. Given the central role that inflation targeting occupies in South Africa’s monetary policy, it becomes necessary to determine the nature of influence of exchange rate changes on domestic prices. To this end, this thesis examines the magnitude and speed of exchange rate pass-through (ERPT) to import, producer and consumer prices in South Africa. Furthermore, it explores whether the direction and size of changes in the exchange rate have different pass-through effects on import prices, that is, whether the exchange rate pass-through is symmetric or asymmetric. The paper uses monthly data covering the period January 1980 to December 2005. In investigating ERPT, two main stages are identified. The initial stage is the transmission of fluctuations in the exchange rate to import prices, while the second-stage entails the pass-through of changes in import prices to producer and consumer prices. The first stage is estimated using the Johansen (1991) and (1995) cointegration techniques and a vector error correction model (VECM). The second stage pass-through is determined by estimating impulse response and variance decomposition functions, as well as conducting block exogeneity Wald tests. The study follows Wickremasinghe and Silvapulle’s (2004) approach in estimating pass-through asymmetry with respect to appreciations and depreciations. In addition, the thesis adapts the analytical framework of Wickremasinghe and Silvapulle (2004) to investigate the pass-through of large and small changes in the exchange rate to import prices. The results suggest that ERPT in South Africa is incomplete but relatively high. Furthermore, ERPT is found to be higher in periods of rand depreciation than appreciation which supports the binding quantity constraint theory. There is also some evidence that pass-through is higher in periods of small changes than large changes in the exchange rate, which supports the menu cost theory when invoices are denominated in the exporters’ currency.

The law of one price (LOP) plays an important role as a building block in theories of international trade and exchange rate determination. It also serves as a measure of integration for international commodity markets. The LOP states that in competitive markets after adjustment for transportation costs and trade barriers, identical commodities sold in different countries should sell for the same price when their prices are defined in a common currency. The existing economic literature provides a vast body of theoretical and empirical investigations of the validity of the LOP. In general, previous evidence is mixed and there is no unanimous LOP support or refutation. The effects of exchange rate changes on agricultural outputs have been extensively studied, but the issue of the impacts on traded non-farm produced inputs has not been explored as much. This study investigates the impact of the exchange rate ($CN/$US) on the relative prices in U.S. and Canadian agricultural markets for five major farm outputs and four non-farm produced inputs, which are traded between these two closely integrated economies. Adherence to the LOP is evaluated by examining the pass-through effects of exchange rate changes on these prices using quarterly data. The sample covers the period of 1975 - 1999, when there were substantial exchange rate movements. Regression and cointegration techniques are utilized to estimate whether and at what rate exchange rate changes are transmitted to prices. The empirical results give rise to supportive evidence in favor of the LOP for the five farm outputs. The evidence is somewhat weaker for three of the four non-farm produced inputs, and the LOP is violated for one input.
Master of Science

The question of exchange rate pass-through into domestic inflation is a widely analyzed issue due to its importance as regards to monetary policy, exchange rate policy and in general macroeconomic policy for open economies. Although most of the literature is focused on the exchange rate pass-through at the aggregate level, there are fewer studies that are done at the sectoral level for the Turkish economy. In this study by using a distribution chain of pricing model developed by McCarthy (2000), pass-through of exchange rates and import prices into domestic prices for selected sectors are examined for the Turkish economy. The emprical model estimates a Vector Auto Regression (VAR) to see pass-through dynamics through times and across the selected sectors. This study covers March 2002-December 2010 period
the period of floating exchange rates. Findings indicate that pass-through has fallen recently in Turkey. Moreover, results of the analysis show that external factors explain an important proportion of the variance of domestic prices for the sectors which have a larger import share.

Cette thèse explore la transmission des variations du taux de change sur les prix d’exportation et d’importation à un niveau agrégé et désagrégé pour quatre pays développés. Nous utilisons plusieurs méthodes économétriques récentes afin de fournir des mesures robustes sur la transmission du taux change. Notre recherche soutient la présence d’asymétrie dans la transmission des variations du taux de change sur les prix. En outre, nous constatons que le coefficient de transmission est plus élevé lorsqu’on tient compte de cette asymétrie. Par conséquent, la non prise en compte de ces asymétries, si elles existent, pourrait conduire à des résultats trompeurs. Ce résultat a d’importantes implications sur les politiques monétaires. En effet, les décideurs devront faire face à un dilemme lorsqu'ils doivent choisir entre la stabilité des prix et la compétitivité-prix à l'exportation. De plus, dans cette recherche, nous testons si le degré d’ouverture affecte le degré de report du taux de change. Les résultats montrent, que dans la plupart des cas, il n'y a pas de rôle significatif pour le degré d'ouverture
This thesis explores the transmission of exchange rate movements into export and import prices at both the aggregate and the disaggregate level for four advanced countries. We use several up-to-date econometric methods in order to provide robust measures of exchange rate pass-through. The main finding of our research is to provide clear support for the presence of asymmetry in the exchange rate pass-through, i.e. the fact that appreciations and depreciations are pass through prices in a different magnitude. Moreover, we find that, in many cases, the pass-through coefficient is higher when we take into account this asymmetry. Therefore not taking into account potential asymmetries may lead to wrong results in the ERPT estimation. This finding has several important implications for monetary policy. Indeed, policy-makers will face a dilemma as they try to pursue price stability and export competitiveness. Moreover, our research also studies whether the degree of trade openness affects the exchange rate pass-through. The results in this case show that there is no significant role for the degree of trade openness for most cases

This study examines the effect of exchange rate changes on consumer prices in Nigeria by examining the magnitude and speed of exchange rate pass-through (ERPT) to consumer prices in Nigeria using quarterly time series data from 1986 to 2013. The study also examines the potential nonlinearities and asymmetries in the ERPT in Nigeria during the same period. The study used vector error correction model (VECM) and smooth transition autoregresive (STAR) model. The methodology employed, are free from some weaknesses of the previous empirical studies and contributed to the analysis of ERPT from a macroeconomic perspective. This study focuses on the macroeconomic perspective of the effect of ERPT which is more relevant for monetary policy. To design and implement an efficient monetary policy, theoritical and empirical knowledge of the ERPT to domestic consumer price is necessary. Similarly, the understanding of the level of ERPT to domestic consumer prices would offer more understanding of the international transmission of shocks and the efficiency of exchange rate policy measures on external adjustment. The study results show full and statistically significant ERPT in the long-run in Nigeria during the sample period. However, using linear model (VECM) the short-run estimate shows no significant ERPT in Nigeria. Whereas, the nonlinear STAR model shows significant ERPT even in the short-run in Nigeria. The results of the nonlinear model (STAR) show evidence of nonlinearities and asymmetries in the ERPT in Nigeria. The nonlinearities and asymmetries tend to be prevalent during periods of higher inflation and greater exchange movements when the changes in prices and exchange rates exceed certain thresholds. This study, therefore, confirms Taylor’s (2000) hypothesis that pass-through declines in low and stable inflation environment which create nonlinear ERPT. The result shows asymmetric ERPT to the direction of exchange rate change (appreciation or depreciation). The result also shows clear evidence of nonlinearity with respect to the size of the exchange rate change. This result is in line with the menu cost hypothesis where the importing firms do not transfer the exchange rate changes due to the cost of changing their menu. Therefore, the effect of the exchange rate changes on consumer price is minimal when the exchange rate changes are below the threshold level. The study also examined the output growth as a source of nonlinearities. However, the result does not show evidence of nonlinear ERPT due to the output level. The comparison of statistical test results of linear autoregressive (AR) and the nonlinear (STAR) model indicates that the nonlinear STAR model fits the data better than the linear AR model in all cases. The results of this study, therefore, show a significant impact of exchange rate changes on the domestic consumer price in both short run and long run. The asymmetric and nonlinear ERPT induced by the pricing behaviors of the importing firms also significantly influences the speed and magnitude of the ERPT to consumer prices in Nigeria.

Monetary policy has become a key component of economic policies. Modern monetary policy has been shaped by a substantial amount of theoretical and empirical research over the past few decades. The thesis focuses on three particular areas where the influences of monetary policy have become of great importance over the recent decades. While the 1st chapter sets out the backdrop, the 2nd chapter focuses on exchange rate pass through elasticities and their macroeconomic determinants. Pass through is a source of inflation through imports in open economies and has reportedly been declining in a number of countries since the 1980s for aggregate prices level. Low average and persistent inflation has been suggested as one of the main reasons for this decline. Pass through is influenced by the monetary policy regimes. We first estimate the pass through elasticities and verify the evidence of declining pass through across different monetary policy regimes for 39 countries over the period 1981 to 2010 by constructing some relevant indices. We find the evidence of declining pass through over the period. Secondly, we verify the important macroeconomic determinants by including some macroeconomic variables and monetary policy regimes. Our findings reaffirmed the importance of inflation in determining pass through elasticities and suggest that inflation targeting monetary policy regime and greater central bank autonomy reduce pass through elasticities. In the 3rd chapter, we first provide a classification of de facto monetary policy regimes for 124 countries, which includes 7 exchange rate regimes and 4 inflation targeting and monetary targeting regimes. The previous studies had only classified de facto exchange rate regimes and ignored the underlying monetary policy frameworks in their classifications exercises. However, the outcome of such classifications will not be accurate, as some of the identical exchange rate regimes will have different monetary policy frameworks, such as inflation targeting, which needs to be taken into account in any proper assessment of the impact of the regimes on growth and inflation. Secondly, we evaluate the regime performances on growth and inflation by using pooled mean group (PMG) estimation method instead of GMM. PMG is more suitable for panel analysis with a large number of time series observations (T) and the number of groups(N). The findings suggest that monetary policy with nominal anchors is more conducive to growth. The 4th chapter focuses on the relationship between financial development and economic growth in terms of both the quality and volume of financial development in eight Asian and south east Asian emerging economies for the period 2003 to 2012. We have estimated the cost and profit efficiencies of the banks in these countries for the first time to measure the quality of financial institutions. Broad money growth and bank credit to the private sector as a percentage of GDP have been used for the volume measures. The findings suggest the importance of both the volume and the quality of financial development for growth in these countries. The 5th and the final chapter concludes.

This paper constructs a small open economy New Keynesian Dynamic Stochastic General Equilibrium (DSGE) model, to examine monetary policy conduct and the extent of exchange rate pass-through in Botswana. Thus, I apply a three-step procedure. In the first step, I estimate the degree of exchange rate pass-through to Consumer Price Index (CPI) and import prices using a Vector Error Correction model (VECM). Secondly, I carry out simulations using trade openness parameter value suggested by the imports and exports to GDP ratio for Botswana and using parameter values consistent with Justiniano and Preston (2010). The simulations allow me to establish the impact of different economic disturbances on Botswana’s business cycle fluctuations and the extent to which these economic disturbances influence Botswana’s business cycle fluctuations. Following this set-up, using time series data for Botswana’s macro-economic variables for the period 2004:Q1-2017:Q4 obtained from Bank of Botswana I use Bayesian methods to estimate the DSGE model. I find that in the short-run, exchange rate pass-through to CPI and imports prices is low, at 12 percent and 5 percent, respectively. Secondly, the simulations show that imports cost-push shock leads to a decrease in consumption by a higher magnitude than the decrease in output. The estimation results show that the central bank allocates the largest weight towards price stability as compared to other target variables such as the output gap, in its monetary policy rule. Moreover, the monetary policy shock, import cost-push shock and risk premium are responsible for majority of the business cycle fluctuations in Botswana. These findings may be useful for policy makers and in particular in guiding their policy decision making because of the suggested variables that may influence business cycle fluctuations in Botswana.

This dissertation consists of essays that study exchange rate pass-through, China’s de facto exchange rate regime, and China’s capital controls. The first essay studies exchange rate pass-through (ERPT) by using a set of data from ten countries including four advanced economies and six Asian emerging markets. The price indices used in this essay include consumer price, producer price, import price and export price indices. While most literature only include the import price index, this essay also puts emphasis on the export price index. It investigates the asymmetry in the ERPT between depreciation and appreciation of domestic currency by using a non-linear OLS model; meanwhile, the short-run and long-run effects of ERPT are also compared with each other. It also detects possible structural change in the ERPT and finds most structural change points are around the Great Recession and Asia financial crisis. Finally, a VAR model is developed to detect the impulse responses of prices to exchange rate shock. The second essay is about China’s exchange rate regime. It has changed a lot since the 2005 reform. It is interesting and important to investigate China’s de facto exchange rate regime with the most recent data. This essay follows Frankel and Wei’s (2008) method, by applying both the basic model and new model with the exchange market pressure (EMP) variable to currency basket for the Chinese yuan exchange rate. I select the US dollar, the Euro, the British pound, the Japanese yen, the Canadian dollar, the Australian dollar and the Russian ruble as component currencies of the basket, based on free floaters, GDP and trade volume. I also add results from a VAR model, considering the endogeneity issue, and the results are consistent with those of OLS. I find the weight of the US dollar declines dramatically and the variation of the Chinese yuan becomes much larger after 2015. This implies that China has been transferring its exchange rate regime from dollar pegged to free floating. The third essay investigates the effectiveness of China’s capital controls. In recent years, after 2014, China’s foreign reserves declined dramatically, from 4 trillion US dollars to 3 trillion US dollars. There was a huge amount of capital outflows from China during 2015 to 2016. This phenomenon lets us reconsider the question: Are China’s capital controls still effective? I will use five methods to measure the effectiveness of China’s capital controls, including de jure indicators, saving-investment correlation test, covered interest rate parity, real interest rate differentials and Edwards-Kahn model. The de jure indicators I use are from Fernández et al. (2016) and Chinn and Ito (2008). I compare China with the US, the UK and Japan in the saving-investment correlation test, and with the Eurozone and Japan in covered interest rate parity, real interest rate differentials and Edwards-Kahn model. Various results indicate that China’s capital controls are still effective.

Expectations regarding the relationship between exchange rates and the prices of traded goOds in small open economies have traditionally been derived from the idea of the relative unimportance of a single small country when trading in much larger international markets. This concept has led to the use of distinct 'small-country' or 'dependent-economy' models to analyse the effects of macroeconomic changes. Thus for small economies like Australia, it is usually assumed that the foreign-currency prices of traded goods are fixed in perfectly competitive international markets. Accordingly, exchange rate movements must be completely absorbed in domestic-currency prices. In other words, the pass-through of exchange rate changes to destination-currency prices must be zero for Australian exports, and complete for Australian imports. Such expectations regarding the degree of exchange rate pass-through contrast sharply with those found in conventional macroeconomic models for large countries, in which pass-through is assumed to be complete for all traded goods. Moreover, they conflict with the results derived from the large theoretical and empirical literature on the microeconomic determinants of pass-through, which suggests that much international trade takes place in imperfectly competitive markets, in which the degree of less-than-complete pass-through depends on industry-specific factors. This study explores these apparent conflicts by re-examining the small-country assumption, with particular emphasis on export prices as the area of greatest divergence. Specifically, it addresses three research questions: 1) What are the theoretical conditions that underlie the small-country assumption? 2)What are the implications for the macroeconomic models of small economies if this assumption is violated? 3) In practice, is the data more consistent with the validity or otherwise of the assumption? The analysis focuses on Australia as a practical example of a small open economy with a high proportion of commodity exports. In summary, the theoretical and empirical results reported in this study suggest that the small-country assumption is unlikely to hold in practice. That is, exchange rate pass-through is more likely to be determined by industry-specific factors, rather than by the universal conclusion of zero pass-through for all Australian exports that is derived from the small-country assumption. Further, they imply that the movement in internal prices required to restore equilibrium in a small country following an external shock is likely to be both larger and more uncertain than has previously been expected. Under such circumstances, the full flexibility of the exchange rate, as the primary and most rapid source of the required adjustments, becomes particularly significant. An important policy implication for small open economies that are subject to frequent terms of trade shocks, such as Australia, is that attempts to manage the exchange rate in order to reduce apparently excessive movements may in fact result in a longer and more protracted process of adjustment through the labour market.
Thesis (PhD Doctorate)
Doctor of Philosophy (PhD)
School of Economics
Griffith Business School
Full Text

Orientador: Mariano Francisco Laplane
Tese (doutorado) - Universidade Estadual de Campinas, Instituto de Economia
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Resumo: Esta tese analisa empiricamente os impactos de variações cambiais sobre os preços de exportação e os preços industriais domésticos, desagregados setorialmente, no Brasil durante o período 1995-2005, levando em consideração a inserção externa da economia em um contexto de ampliação da internacionalização após o processo de reestruturação produtiva implementado ao longo da década de 1990. O referencial teórico incorpora trabalhos sobre o tema do exchange rate pass-through que privilegiam aspectos ligados à estrutura de comércio e à estratégias de empresas estrangeiras operando em diversos mercados. Os coeficientes de pass-through referentes aos preços de exportação indicam que os maiores repasses ocorrem em setores produtores de bens de menor conteúdo tecnológico em que o Brasil possui posição comercial relativamente forte, ao passo que parte dos setores produtores de manufaturados apresentam coeficientes de repasse cambial reduzido. Em relação ao preçõs industriais domésticos, os maiores coeficientes de passthrough foram observados em setores produtores de manufaturados, geralmente importadores de componentes intermediários dotados de maior conteúdo tecnolóico. Os resultados refletem em grande medida a inserção comercial brasileira, indicando que desvalorizações cambiais não possuem o mesmo efeito para todos os setores em termos de elevação da competitividade
Abstract: This work analyses the impacts of changes in exchange rates on domestic and export prices in Brazil during the 1995-2005 period. The main theoretical references take into account microeconomic aspects of international trade, like market structure and the role of transnational corporations. The findings suggest that exchange rate pass-through to export prices of less complex goods, like commodities, tends to be higher. Regarding more complex goods, like automobiles and machinery, the results indicate reduced pass-through, notwithstanding the high pass-through to prices of electronics and other vehicles. Concerning domestic prices, the results are quite different: estimates indicate higher exchange rate pass-through to prices of more complex goods. In general, these sectors present expressive consumption of imported intermediate goods, like electronics, chemical industry and pharmaceutical products. To some extent, these results reflect the structure of the Brazilian international trade
Doutorado
Teoria Economica
Doutor em Ciências Econômicas

I den här uppsatsen har jag undersökt hur pass-through effekten har förändrats i svenska importpriser på aggregerad nivå och i sju olika industrier. Pass-through effekten definieras som den procentuella förändringen i ett pris som kan härledas till en enprocentig växelkursförändring. Jag har använt rullande regressioner på två olika modeller för att estimera förändringar över tidsperioden 1980 – 2003. Resultaten visar en nedgång i pass-through effekten i flertalet industrier både på kort och lång sikt. Men på aggregerad nivå visar resultaten att effekten inte har förändrats nämnvärt över tiden. På kort sikt visar de båda metoderna liknande resultat, men på lång sikt finns det en skillnad dem emellan. En av modellerna visar en fördröjning i den långsiktiga pass-through effekten, vilket kan förklaras med att prissättningen inte är effektiv och att det finns störningar på marknaden.

Dans cette thèse, nous étudions comment les firmes ajustent leurs prix dans différents marchés pour répondre aux variations du taux de change (report de taux de change). En règle générale, l’incidence des mouvements de change sur les prix dépend des caractéristiques de chaque marché telles que la nature de la concurrence et l’élasticité de la demande. Le report de taux de change (RTC) et la tarification en fonction du marché sont analysés dans trois chapitres en utilisant les théories du commerce international et de l’organisation industrielle. Le RTC est complet lorsque les variations du taux de change sont pleinement transmises aux prix à l’exportation. Le RTC est incomplet lorsque les variations de change ne se répercutent pas intégralement sur les prix à l’exportation. Un RTC est pervers si le prix varie plus proportionnellement que le taux de change. Le premier chapitre examine la relation entre la durée de conservation des produits alimentaires et les RTC. Plusieurs produits agroalimentaires ont la caractéristique d’être vendus rapidement ou transformés en produits moins périssables, stockés et commercialisés dans des périodes ultérieures. Cette relation verticale entre produits frais et produits transformés a une incidence sur les RTC. Notre modèle prend en considération la capacité de traitement et de stockage. Nos résultats montrent que le degré de périssabilité du produit transformé diminue les RTC au prix des produits frais et transformés avant l’accumulation des stocks, et les augmente au cours de l’accumulation des stocks. Dans ce chapitre, nous constatons aussi une relation négative entre la persistance de l’appréciation du taux de change et l’accumulation des stocks. Nous y montrons également que des RTC pervers peuvent émerger à court terme si les coûts des intrants échangés couvrent une part significative des coûts totaux, même si les RTC à long terme sont toujours incomplets. Le deuxième chapitre analyse les RTC aux prix à l’exportation en présence de la production conjointe. Plusieurs produits agricoles partagent certains intrants et sont produits dans des proportions fixes (par exemple les épaules de porc et les reins de porc ou les pattes de poulet et la poitrine de poulet). Ainsi, l’augmentation de la production d’un produit s’accompagne d’une augmentation de la production d’autres produits. Il s’ensuit que le RTC au prix d’un produit est directement lié aux RTC aux autres produits joints. En conséquence, certains RTC peuvent être pervers, surtout lorsque les consommateurs du pays d’origine et des pays étrangers ont des préférences non identiques ou que les produits joints partagent des proportions d’intrants asymétriques. Aussi dans ce chapitre, nous montrons que le degré de substitution entre les produits renforce les RTC pervers. Enfin, nous montrons que les firmes ont tendance à faire des ajustements de prix plus petits quand il y a moins de produits conjoints. Le dernier chapitre généralise les fonctions de coût de production et de transformation du modèle du premier chapitre et suppose que les fonctions coûts peuvent prendre des formes non linéaires. Dépendamment du degré de convexité de ces fonctions, la technologie de production et de transformation peut être caractérisée par des économies ou déséconomies de taille. Les RTC aux prix à l’exportation sont souvent incomplets, mais des répercussions perverses peuvent découler de différentes hypothèses concernant les coûts marginaux de production et de transformation.
Dans cette thèse, nous étudions comment les firmes ajustent leurs prix dans différents marchés pour répondre aux variations du taux de change (report de taux de change). En règle générale, l’incidence des mouvements de change sur les prix dépend des caractéristiques de chaque marché telles que la nature de la concurrence et l’élasticité de la demande. Le report de taux de change (RTC) et la tarification en fonction du marché sont analysés dans trois chapitres en utilisant les théories du commerce international et de l’organisation industrielle. Le RTC est complet lorsque les variations du taux de change sont pleinement transmises aux prix à l’exportation. Le RTC est incomplet lorsque les variations de change ne se répercutent pas intégralement sur les prix à l’exportation. Un RTC est pervers si le prix varie plus proportionnellement que le taux de change. Le premier chapitre examine la relation entre la durée de conservation des produits alimentaires et les RTC. Plusieurs produits agroalimentaires ont la caractéristique d’être vendus rapidement ou transformés en produits moins périssables, stockés et commercialisés dans des périodes ultérieures. Cette relation verticale entre produits frais et produits transformés a une incidence sur les RTC. Notre modèle prend en considération la capacité de traitement et de stockage. Nos résultats montrent que le degré de périssabilité du produit transformé diminue les RTC au prix des produits frais et transformés avant l’accumulation des stocks, et les augmente au cours de l’accumulation des stocks. Dans ce chapitre, nous constatons aussi une relation négative entre la persistance de l’appréciation du taux de change et l’accumulation des stocks. Nous y montrons également que des RTC pervers peuvent émerger à court terme si les coûts des intrants échangés couvrent une part significative des coûts totaux, même si les RTC à long terme sont toujours incomplets. Le deuxième chapitre analyse les RTC aux prix à l’exportation en présence de la production conjointe. Plusieurs produits agricoles partagent certains intrants et sont produits dans des proportions fixes (par exemple les épaules de porc et les reins de porc ou les pattes de poulet et la poitrine de poulet). Ainsi, l’augmentation de la production d’un produit s’accompagne d’une augmentation de la production d’autres produits. Il s’ensuit que le RTC au prix d’un produit est directement lié aux RTC aux autres produits joints. En conséquence, certains RTC peuvent être pervers, surtout lorsque les consommateurs du pays d’origine et des pays étrangers ont des préférences non identiques ou que les produits joints partagent des proportions d’intrants asymétriques. Aussi dans ce chapitre, nous montrons que le degré de substitution entre les produits renforce les RTC pervers. Enfin, nous montrons que les firmes ont tendance à faire des ajustements de prix plus petits quand il y a moins de produits conjoints. Le dernier chapitre généralise les fonctions de coût de production et de transformation du modèle du premier chapitre et suppose que les fonctions coûts peuvent prendre des formes non linéaires. Dépendamment du degré de convexité de ces fonctions, la technologie de production et de transformation peut être caractérisée par des économies ou déséconomies de taille. Les RTC aux prix à l’exportation sont souvent incomplets, mais des répercussions perverses peuvent découler de différentes hypothèses concernant les coûts marginaux de production et de transformation.
This thesis outlines how firms adjust their prices in different markets in response to exchange rate variations (exchange rate pass-through). Generally, these price adjustments depend on each market’s characteristics such as the degree of competition, demand elasticities, and product characteristics (pricing to market). We investigate the exchange rate pass-through (ERPT) and pricing to market (PTM) in three chapters employing concepts from international trade theory and industrial-organization (I/O) approach. The ERPT is complete when the export price just offsets the variation in the exporting country’s currency. The ERPT is incomplete when the change in the exchange rate is not completely transmitted to the export price. The ERPT is perverse when the export price varies more proportionally than the exchange rate. In the first chapter, we examine the relationship between the shelf life of food products, the processing technology, and the ERPTs. Several food products have the characteristic of being sold quickly or being converted to less perishable products, stored and marketed in subsequent periods. Such coupling between fresh and processed products impacts on how their prices evolve in response to exchange rate shocks. Our model considers the capacity of processing and storage. Our results show that the rise in the perishability of the processed product decreases the short-run ERPTs for the fresh and processed product prices before the inventory accumulation and increases the short-run ERPTs during the inventory building. Moreover, we find a negative relationship between the persistence of the exchange rate appreciation and the inventory accumulation. We also show that perverse short-run ERPTs can emerge if the trade cost accounts for a significant proportion of the total costs even if the long-run pass-throughs are always incomplete. In the second chapter, we analyze the ERPTs for export prices in the presence of jointness in production. Several agricultural products share some inputs and are produced in fixed proportions (e.g., pork shoulders and pork loins or chicken legs and chicken breast). Thus, the increase in the production of one product is accompanied by increases in the production of other products. It follows that the ERPT of one product is directly linked to the ERPT of jointly produced products. As a result, some ERPTs may be perverse, especially when consumers in the home and foreign countries have non-identical heterogeneous preferences or the joint products are produced in asymmetric proportions. We also show that the degree of substitutability between products enhances the perverse ERPTs. Finally, we show that the firm tends to make smaller price adjustments when there are fewer joint products. In the last chapter, we develop a static version of the model developed that allows production and processing costs to take nonlinear forms. The latter lead to economies or diseconomies of scale depending on their convexity properties. The ERPTs of export prices are often incomplete but perverse ERPTs can be observed under different assumptions regarding marginal production and processing costs.
This thesis outlines how firms adjust their prices in different markets in response to exchange rate variations (exchange rate pass-through). Generally, these price adjustments depend on each market’s characteristics such as the degree of competition, demand elasticities, and product characteristics (pricing to market). We investigate the exchange rate pass-through (ERPT) and pricing to market (PTM) in three chapters employing concepts from international trade theory and industrial-organization (I/O) approach. The ERPT is complete when the export price just offsets the variation in the exporting country’s currency. The ERPT is incomplete when the change in the exchange rate is not completely transmitted to the export price. The ERPT is perverse when the export price varies more proportionally than the exchange rate. In the first chapter, we examine the relationship between the shelf life of food products, the processing technology, and the ERPTs. Several food products have the characteristic of being sold quickly or being converted to less perishable products, stored and marketed in subsequent periods. Such coupling between fresh and processed products impacts on how their prices evolve in response to exchange rate shocks. Our model considers the capacity of processing and storage. Our results show that the rise in the perishability of the processed product decreases the short-run ERPTs for the fresh and processed product prices before the inventory accumulation and increases the short-run ERPTs during the inventory building. Moreover, we find a negative relationship between the persistence of the exchange rate appreciation and the inventory accumulation. We also show that perverse short-run ERPTs can emerge if the trade cost accounts for a significant proportion of the total costs even if the long-run pass-throughs are always incomplete. In the second chapter, we analyze the ERPTs for export prices in the presence of jointness in production. Several agricultural products share some inputs and are produced in fixed proportions (e.g., pork shoulders and pork loins or chicken legs and chicken breast). Thus, the increase in the production of one product is accompanied by increases in the production of other products. It follows that the ERPT of one product is directly linked to the ERPT of jointly produced products. As a result, some ERPTs may be perverse, especially when consumers in the home and foreign countries have non-identical heterogeneous preferences or the joint products are produced in asymmetric proportions. We also show that the degree of substitutability between products enhances the perverse ERPTs. Finally, we show that the firm tends to make smaller price adjustments when there are fewer joint products. In the last chapter, we develop a static version of the model developed that allows production and processing costs to take nonlinear forms. The latter lead to economies or diseconomies of scale depending on their convexity properties. The ERPTs of export prices are often incomplete but perverse ERPTs can be observed under different assumptions regarding marginal production and processing costs.

Purpose - this study is aimed at to investigating the effects exchange rate and other variables on foreign direct investment (FDI) inflows have on the Namibian economy. Methodology -The model comprises of the unit root test, the co-integration test, the long run equation co-efficient, an error correction model, the normality test and the stability test, were employed to estimate and interpret the results. Finding and recommendations - The results of the study have revealed that a relationship exists between exchange rate and FDI. However, this relationship is said to be statistically insignificant. It cannot therefore be used as a tool to influence FDI in Namibia. The results further indicated that GDP and trade openness were the most significant determinants of FDI in Namibia. The recommendations of this study thus suggest that the government should implement policies to diversify its production across all sectors and increase the manufacturing of finished goods, so as to enhance the GDP growth. Namibia should further advance its trade open through in-creased and fast-tracked trade agreements at both bilateral and multilateral levels.

Uma série de relações de simultaneidade definem a estrutura de determinação dos preços no agregado para uma economia aberta. Além destas inter-relações a natureza das variáveis, seguindo trajetória não estacionárias quando individualmente analisadas mas de equilíbrio no sentido de que se movimentam conjuntamente no longo prazo, faz com que a estrutura para a análise empírica da relação entre a taxa de câmbio e os preços consista em um sistema complexo sobre o qual tem relevância tanto a dinâmica de curto quanto a dinâmica de longo prazo entre das variáveis. O objetivo deste trabalho é manter-se coerente a este contexto para obter estimativas do repasse cambial de longo prazo para os preços da economia brasileira. Isto é possível utilizando o arcabouço metodológico dos modelos Vetores de Correção de Erros (VCE), sendo assim, a principal contribuição deste trabalho consiste na aplicação da metodologia dos modelos Estruturais de Vetores de Correção de Erros (SVCE), introduzidos em King et. al. (1991). Além disso o trabalho discute a identificação do repasse cambial a partir das funções de resposta ao impulso para variáveis não estacionárias, obtidas para os modelos VCE e SVCE, por meio das quais é possível identificar o longo prazo e contrastar os diferentes resultados para o repasse cambial obtidos de acordo com este arcabouço metodológico.
There is a series of simultaneous relations that define the structure of pricing determination in aggregate for an open economy. Besides these interrelations, the nature of the variables, following non-stationary trajectory when analyzed individually but in equilibrium in the sense that, in the long run they move together, causes the structure to the empirical analysis of the relationship between the exchange rate and prices consists in a complex system over which has relevance both the short-run and long-term dynamics between the variables. The objective of this work is to remain consistent in this context to obtaining estimates of long-term exchange pass-through to the aggregate prices of Brazilian economy. This is possible using the methodological framework of the Vector Error Correction models (VEC), inside which, the main contribution of this work consists in applying the methodology of Structural Vector Error Correction models (SVEC), introduced in King et. al. (1991). Furthermore, the paper discusses the identification of exchange rate pass-through using the impulse response functions for non-stationary variables, obtained for the VEC and SVEC models, through which it is possible to identify the long-term exchange rate pass-through and compare the different results obtained according to this methodological framework.

Esse trabalho propõe testar a presença de hysteresis na demanda por importações e no repasse cambial para o preço das importações, no período de 1996 a 2008 no Brasil, utlizando dados em painel para 29 setores industriais. Os testes para a presença de hysteresis baseiam-se no conceito de hysteresis forte fornecido pelo modelo de Preisach (1938), captadas a partir de variáveis representativas do fenômeno calculadas a partir do algoritmo de Piscitelli et al (2000). As estimações utilizam a metodologia convencional em painel, bem como métodos de estimação considerando a possibilidade de cointegração entre as variáveis. Os resultados evidenciaram a presença de hysteresis no preço e no quantum importados. Como teorizou Dixit (1989), o grau de pass-through reduz na presença do fenômeno histerético. Além disso, obtivemos que o grau de repasse cambial para o preço das importações diminuía sob a presença de hysteresis, conforme proposto por Dixit.
This research proposes to test the hysteresis hypothesis on the Brazilian import demand and the exchange rate pass-through from 1996 to 2008 in a panel from 29 industrial sectors. The hysteresis test is based on the strong hysteresis concept from Preisach model, measured by algorithm from Piscitelli et al (2000). The methodology focus on the traditional panels method and the cointegration relationship. The results indicate the presence of hysteresis at both equations. Besides, the exchange rate pass-through estimated reduced in the presence of hysteresis as proposed by Dixit (1989).

Thesis (Ph. D.)--Ohio State University, 2005.
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Cette thèse met en évidence l’aspect macroéconomique du degré de report du taux de change sur les prix dans la zone euro. Nous utilisons un large éventail de méthodes économétriques récentes afin de fournir des mesures robustes sur la transmission du taux change ainsi que sur ses déterminants macroéconomiques. Notre recherche révèle le rôle prépondérant des facteurs macroéconomiques dans le déclin récent du degré de report. Une conséquence directe de ce résultat est que la baisse du taux de transmission du change n’est pas nécessairement un phénomène structurel, et il peut être ainsi résolu par des politiques macroéconomiques conjoncturelles. Par exemple, l’adoption de régimes de politique monétaire plus crédibles avec l’engagement de maintenir une inflation faible joue un rôle important dans la réduction de la sensibilité des prix aux variations du change. Ceci est particulièrement valable pour les pays dont les politiques macroéconomiques sont historiquement laxistes. Ainsi, la poursuite de politiques économiques solide et lisible au sein de l’UEM peut être un outil efficace pour réduire le degré de report du taux de change
This thesis highlights the macroeconomic aspect of the exchange rate pass-through to domestic prices in the euro area countries. We use a wide range of up-to-date econometric methods in order to provide robust measures of the rate of pass-through as well as to shed further light on its macro determinants. The main finding of our research is the prominent role of macroeconomic forces in driving the recent declin of the transmission of currency movements. A direct consequence of this result is that the lowering in the rate of pass-through is not necessarily a structural phenomenon and it may be solved via macroeconomic policies. For instance, the shift to a more stable monetary policy conditions with credible and anti-inflationary regime would reduce the sensibility of prices to exchange rate changes. This is especially true for countries with historically poor macroeconomic policies. Thus, a better macroeconomic management with a sounder set of policies within the EMU may be an effective tool for reducing the degree of pass-through

This thesis consists of three self-contained essays in International Trade, Exchange Rates and Prices. Although independent, these essays share some common themes. The first two papers can be related to the vast literature on exchange rate pass-through to prices. While the first paper uses firm-product level data from Sweden to study firms’ export price response to movements in exchange rate, the second paper employs aggregate level data from Ethiopia and looks at the issue from the importers’ perspective. The third paper, like the first paper, uses Swedish firm-level data and investigates firms’ exporting behavior. The third paper, however, specifically focuses on export margins of multi-product firms and studies their response when exporting to destinations of different size and distance from the home country.

At the time of the doctoral defense, the following papers were unpublished and had a status as follows: Paper 1: Manuscript. Paper 2: Manuscript. Paper 3: Manuscript.

A large proportion of international trade is in intermediate goods. The implications of this empirical regularity, however, have not been exhaustively explored in several aspects. The main objective of the thesis is to fill in the gap by introducing trade in intermediate goods into several strands of literature in international economics. This thesis is a collection of three essays studying the implications of trade in intermediate goods for the degree of exchange rate pass-through (Chapter 2), firms invoicing currency choice (Chapter 3) and the performance of the gravity models (Chapter 4). In Chapter 2 I present a theoretical framework and show that back-and-forth trade between two countries is associated with low degrees of aggregated exchange rate pass-through. In Chapter 3 I focus instead on firm heterogeneity in the dependence on imported inputs. I show theoretically that exporters more dependent on foreign currency-denominated inputs are more likely to price in the foreign currency. I then test the theoretical prediction using an innovative and unique dataset that covers all UK trade transactions with non-EU partners from HM Revenue and Customs (HMRC). Overall the results strongly support the theoretical prediction. Chapter 4 is a theoretical piece of work showing how the underlying trade structure alters the predictions of the gravity models. I relate gravity equations to labour shares of income. Given that these parameters are industry-specific, the results suggest that it is crucial to take them into account when the main research interest lies in sectoral differences in bilateral trade.

This paper provides an empirical study of the asymmetrical spillovers of the euro-US dollar exchange rate on inflation in the euro zone. We divide the euro zone members in two groups of countries: "core" (closely related to Germany) and "periphery", testing if the euro-US dollar exchange rate is still able to give a different impact on the groups’ performance as in the past US dollar-deutschmark polarization phenomenon. Using a dynamic panel data framework based on an exchange rate pass-through model, we estimate the elasticities of the two groups by system IV-GMM and the common correlated effects mean group estimator, testing for the asymmetry. Estimating the model with the first type of method, the exchange rate pass-through coefficient is always significant but the asymmetry between the groups is rejected. Using the common correlated effects mean group estimator we find that the coefficient is significantly negative only for core countries and the hypothesis of asymmetry is not rejected. Note that the significance disappears if we control for the first three years of EMU, but the coefficients for core and periphery have opposite sign in any case. Instead, other unobservable factors, representing global events or spillovers effects, play a relevant role in all the specifications. Based on these results, we cannot conclude that the euro-US dollar is the only key factor in determining the asymmetry in inflation between core and periphery and the hypothesis of a new polarization cannot be fully accepted.

Esta dissertação teve como objetivo analisar teórica e empiricamente o repasse das oscilações cambiais para os níveis de preços no Brasil, através da estimação do pass-through. O período analisado foi de 1994 a 2014, com foco no período de taxa de câmbio flexível. O pass-throughfoi estimado em duas abordagens distintas, através de um OLS em janelas fixas (rollingwindows) onde os parâmetros são fixos no tempo e através de um modelo com parâmetros variáveis no tempo, pelo Filtro de Kalman. Os resultados apresentaram evidências de uma queda do repasse com a adoção do regime de câmbio flutuante, um repasse cambial menor após apreciações do que após depreciações eque reações do IGP-DI do IPA são mais rápidas e intensas a choques da taxa de câmbio que o IPCA.
This dissertation analyzed theoretically and empirically the pass-through from exchange ratetoinflationin Brazil. The analyzed period extends from 1994 to 2014, focusing on the floating exchange rate regime. Two methodologies were employed: i) an OLS through rolling windowsin which the parameters are fixed in time and ii) aKalman filter, with varying-parameters. The results suggested a lower pass-through since the adoption of a floating exchange rate regime andalso a lower pass-through after an appreciation then after depreciations. In addition, responses of the IGP-DI and IPAfrom exchange rate shocks are faster and more intense thanthose of IPCA.