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Exchange rate pass-through to import prices in Europe: a panel cointegration approach

Author

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  • Antonia Arsova

    (TU Dortmund University
    RWI – Leibniz Institute for Economic Research)

Abstract

This paper takes a panel cointegration approach to the estimation of short- and long-run exchange rate pass-through (ERPT) to import prices in the European countries. Although economic theory suggests a long-run relationship between import prices and exchange rate, in recent empirical studies its existence has either been overlooked or it has proven difficult to establish. Resorting to novel tests for panel cointegration, we find support for the equilibrium relationship hypothesis. Exchange rate pass-through elasticities, estimated by two different techniques for cointegrated panel regressions, give insight into the most recent development of the ERPT.

Suggested Citation

  • Antonia Arsova, 2021. "Exchange rate pass-through to import prices in Europe: a panel cointegration approach," Empirical Economics, Springer, vol. 61(1), pages 61-100, July.
    • Handle: RePEc:spr:empeco:v:61:y:2021:i:1:d:10.1007_s00181-020-01858-8
    DOI: 10.1007/s00181-020-01858-8
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    More about this item

    Keywords

    Exchange rate pass-through; Import prices; Panel cointegration; Cross-sectional dependence; Common factors;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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