Abstract The resilience of trade balances of the major industrialised economies such as the US and Japan to changes in their exchange rates following the switch from fixed to floating exchange rate regimes, triggered interest in the exchange rate pass-through relationship. Because of the importance of the pass-through issue particularly in economic policy formulation, a sizeable literature has developed over recent years. Comprehensive surveys of this literature include Menon (1995), Goldberg and Knetter (1997) and McCarthy (2002). However, not much attention has been paid to the comparison of the methodologies for estimating exchange rate pass-through. This research report aims to address this imbalance by comparing some of the exchange rate pass-through estimation methodologies via a Monte Carlo simulation study, based on the South African data set. The econometric results reported in this research report suggest that the Johansen type VECMs are superior to polynomial distributed lag models, exchange rate pass-through to South Africa’s import prices is incomplete (around 78%) and that the speed of adjustment to long-run equilibrium is low, about 7 per cent of disequilibrium in the previous month is corrected in the current month. We conclude that if we are not sure about the unit root properties of the data (as is normally the case), then the ARDL precedure is the appropriate model for empirical work.

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.

<p>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.</p>

This thesis analyzes the pass-through of external factors into consumer and producer prices in Turkey, with a special emphasis on import price pass-through. To this end, pricing along a distribution chain framework is utilized and it is estimated by Vector Auto Regression (VAR) in a sample period of April 2002 to March 2009. Results show that the pass-through of external shocks into producer prices is higher than it is for consumer prices. Compared with the results of previous studies, findings point out that the degree of pass-through has declined recently in Turkey. In addition, it is found that external factors had significant contribution to annual consumer inflation between 2006 and 2008. Nevertheless, even the contributions of external shocks are excluded, year-end inflation targets would not have been attained.

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.

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.

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)

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

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.

The thesis is focused on the changes in the terms of trade in Czech international trade in the term of from 2005 to 2015, as the period after the Czech Republic joined the European Union. The terms of trade are an important indicator of the benefits and loses of international trade. The main aim is to analyze the changes of terms of trade, the causes of their changes, and the impact on the real economy. The direction of the overall terms of trade index was highly unsettled, and did not actually generated additional gains in the economy not over the reporting period. The overall terms of trades were most influenced by the price development of two groups of the Standard International Trade Classification, Crude materials and lubricants, and machinery and transport equipment. The prices of Crude materials and lubricants are determined mainly by changes in the oil prices. These were very volatile in the reporting period, the especially the collapse of the prices in both 2009 and 2014-2015, had a significant impact on the import prices of the Czech economy. The thesis also analyzes the impact of exchange rate on the international trade prices, in the period since November 2013, i.e. after the Czech National Bank has committed to maintain the rate of Czech koruna against the Euro above the level of 27 CZK/EUR, which helped to protect the economy from deflations and enhance the economic growth. The effect of the weak crown, that favored the Czech exporters, however a faded over time.