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Can inaction account for the incomplete exchange rate pass-through? Evidence from threshold ARDL model

Author

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  • Karolina Konopczak

    (Department of Applied Economics, Warsaw School of Economics and Macroeconomic Policy Department, Polish Ministry of Finance, Warsaw, Poland)

Abstract

Numerous empirical studies suggest that the responses of prices to exchange rate movements are muted, i.e. the exchange rate pass- through is incomplete. In this study we investigate whether this result can be explained by inaction to small changes in the exchange rate, in which case the incompleteness would constitute merely an artefact introduced by the linear specification of the pass-through equation. The results obtained for Polish industry show significant sign- and size-dependence in the sensitivity of export prices to exchange rate movements, but only in a few cases they fully account for the incompleteness of the pass- through. The tendency for inaction is to a large extent determined by industry's characteristics, with sectors more technologically advanced and more involved in international activities, more willing or able to absorb exchange rate movements in their markups, thereby stabilizing their prices in the destination markets.

Suggested Citation

  • Karolina Konopczak, 2019. "Can inaction account for the incomplete exchange rate pass-through? Evidence from threshold ARDL model," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 19(2), pages 276-295.
    • Handle: RePEc:bic:journl:v:19:y:2019:i:2:p:276-295
    DOI: 10.1080/1406099X.2019.1654223
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    Cited by:

    1. Sy-Hoa Ho & Jamel Saadaoui, 2021. "Symmetric and asymmetric effects of exchange rates on money demand: empirical evidence from Vietnam," Applied Economics, Taylor & Francis Journals, vol. 53(34), pages 3948-3961, July.
    2. Sy Hoa Ho & Jamel Saadaoui, 2019. "Symmetric and asymmetric effects of exchange rates on money demand: Empirical evidence from Vietnam," Working Papers hal-02421007, HAL.

    More about this item

    Keywords

    Exchange rate pass-through; non-linear cointegration; non-linear ARDL; band of inaction;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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