This paper presents theoretical arguments for a non-linear pass-through relationship for import and export prices and investigates the relationship empirically. The theoretical argument is based on the menu-cost approach in which small absolute changes in exchange rates may not prompt price changes because the costs of doing so exceed the extra profits generated for firms involved in international trade. This relationship is investigated empirically using quarterly data for the period 1979q1 to 2015q1 for a sample of seventeen countries. In the case of import prices, evidence is found of non-linear adjustment consistent with the theoretical model in four out of seventeen cases. In the case of export prices, such a relationship is only evident for two economies in the sample. However, for both the import and export price cases, a significant positive non-linear relationship is found for the two largest economies in the sample i.e. the United States and Japan.
History
School
Business and Economics
Department
Economics
Published in
Applied Economics
Citation
TURNER, P. and WOOD, J.A., 2017. Non-linear exchange rate pass through in industrial economies. Applied Economics, 49 (4), pp. 397-402.
This work is made available according to the conditions of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International (CC BY-NC-ND 4.0) licence. Full details of this licence are available at: https://creativecommons.org/licenses/by-nc-nd/4.0/
Acceptance date
2016-05-30
Publication date
2017
Notes
This is an Accepted Manuscript of an article published by Taylor & Francis in Applied Economics on 24 Jun 2016, available online: http://dx.doi.org/10.1080/00036846.2016.1197374.