IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/49991.html
   My bibliography  Save this paper

A Panel Cointegration Analysis of the Exchange Rate Pass-Through

Author

Listed:
  • Ben Cheikh, Nidhaleddine
  • Mohamed Cheik, Hamidou

Abstract

This paper investigates the presence of a long-run equilibrium relationship in the exchange rate pass-through (ERPT) equation for a panel of 27 OECD countries. Previous empirical panel data studies, have neglected the possibility of cross-sectional correlation and spillovers amongst countries. Since the strong economic and financial linkages between OECD countries cannot be ignored, we apply second generation panel unit root and panel cointegration tests which account for possible cross-section dependence across the units in the panel. Our results suggest the existence of a cointegrated equilibrium relationship between the variables in levels, as implied by the theoretical underpinning of the ERPT mechanism. When estimating the long-run pass-through coefficient, both FM-OLS and DOLS estimators show an incomplete pass-through, i.e. import prices sensitivity to exchange rate movements does not exceed 0.70% for our sample of OECD countries. This evidence of partial pass-through would represent a key element in understanding the ongoing global external imbalances.

Suggested Citation

  • Ben Cheikh, Nidhaleddine & Mohamed Cheik, Hamidou, 2013. "A Panel Cointegration Analysis of the Exchange Rate Pass-Through," MPRA Paper 49991, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:49991
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/49991/1/MPRA_paper_49991.pdf
    File Function: original version
    Download Restriction: no

    File URL: https://mpra.ub.uni-muenchen.de/50123/9/MPRA_paper_50123.pdf
    File Function: revised version
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Jeannine Bailliu & Eiji Fujii, 2004. "Exchange Rate Pass-Through and the Inflation Environment in Industrialized Countries: An Empirical Investigation," Staff Working Papers 04-21, Bank of Canada.
    2. Corsetti, Giancarlo & Dedola, Luca & Leduc, Sylvain, 2008. "High exchange-rate volatility and low pass-through," Journal of Monetary Economics, Elsevier, vol. 55(6), pages 1113-1128, September.
    3. Pinelopi Koujianou Goldberg & Michael M. Knetter, 1997. "Goods Prices and Exchange Rates: What Have We Learned?," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1243-1272, September.
    4. Whitney K. Newey & Kenneth D. West, 1994. "Automatic Lag Selection in Covariance Matrix Estimation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(4), pages 631-653.
    5. Anindya Banerjee & Massimiliano Marcellino & Chiara Osbat, 2004. "Some cautions on the use of panel methods for integrated series of macroeconomic data," Econometrics Journal, Royal Economic Society, vol. 7(2), pages 322-340, December.
    6. Jane E. Ihrig & Mario Marazzi & Alexander D. Rothenberg, 2006. "Exchange-rate pass-through in the G-7 countries," International Finance Discussion Papers 851, Board of Governors of the Federal Reserve System (U.S.).
    7. José Manuel Campa & Linda S. Goldberg, 2005. "Exchange Rate Pass-Through into Import Prices," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 679-690, November.
    8. Pedroni, Peter, 2004. "Panel Cointegration: Asymptotic And Finite Sample Properties Of Pooled Time Series Tests With An Application To The Ppp Hypothesis," Econometric Theory, Cambridge University Press, vol. 20(3), pages 597-625, June.
    9. M. Hashem Pesaran, 2007. "A simple panel unit root test in the presence of cross-section dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 265-312.
    10. BARHOUMI Karim, 2005. "Exchange Rate Pass-Through Into Import Prices In Developing Countries: An Empirical Investigation," Economics Bulletin, AccessEcon, vol. 3(26), pages 1-14.
    11. Joakim Westerlund, 2007. "Testing for Error Correction in Panel Data," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 69(6), pages 709-748, December.
    12. Barhoumi, Karim, 2006. "Differences in long run exchange rate pass-through into import prices in developing countries: An empirical investigation," Economic Modelling, Elsevier, vol. 23(6), pages 926-951, December.
    13. Kozluk, Tomasz & Banerjee, Anindya & de Bandt, Olivier, 2008. "Measuring Long-Run Exchange Rate Pass-Through," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 2, pages 1-36.
    14. Smets, Frank & Wouters, Raf, 2002. "Openness, imperfect exchange rate pass-through and monetary policy," Journal of Monetary Economics, Elsevier, vol. 49(5), pages 947-981, July.
    15. Menon, Jayant, 1995. "Exchange Rate Pass-Through," Journal of Economic Surveys, Wiley Blackwell, vol. 9(2), pages 197-231, June.
    16. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    17. Peter Pedroni, 1999. "Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(S1), pages 653-670, November.
    18. Mark J. Holmes, 2008. "Long-Run Pass-Through From The Exchange Rate To Import Prices In African Countries," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 33(1), pages 97-111, June.
    19. Peter Pedroni, 2001. "Purchasing Power Parity Tests In Cointegrated Panels," The Review of Economics and Statistics, MIT Press, vol. 83(4), pages 727-731, November.
    20. Jeannine Bailliu & Hafedh Bouakez, 2004. "Exchange Rate Pass-Through in Industrialized Countries," Bank of Canada Review, Bank of Canada, vol. 2004(Spring), pages 19-28.
    21. repec:bla:obuest:v:61:y:1999:i:0:p:653-70 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. 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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Nidhaleddine Ben cheikh, 2012. "Long-run exchange rate pass-through: evidence from new panel data techniques," Economics Bulletin, AccessEcon, vol. 32(3), pages 1-24.
    2. Barhoumi, Karim, 2006. "Differences in long run exchange rate pass-through into import prices in developing countries: An empirical investigation," Economic Modelling, Elsevier, vol. 23(6), pages 926-951, December.
    3. Nidhaleddine Ben Cheikh & Christophe Rault, 2017. "Investigating first-stage exchange rate pass-through: Sectoral and macro evidence from euro area countries," The World Economy, Wiley Blackwell, vol. 40(12), pages 2611-2638, December.
    4. barhoumi karim, 2005. "Long Run Exchange Rate Pass-Through Into Import Prices In Developing Countries: An Homogeneous or Heterogeneous Phenomenon?," Economics Bulletin, AccessEcon, vol. 6(14), pages 1-12.
    5. repec:wsr:wpaper:y:2012:i:078 is not listed on IDEAS
    6. repec:ebl:ecbull:v:6:y:2005:i:14:p:1-12 is not listed on IDEAS
    7. Nidhaleddine Ben Cheikh & Christophe Rault, 2016. "Recent estimates of exchange rate pass-through to import prices in the euro area," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 152(1), pages 69-105, February.
    8. Jaunky, Vishal Chandr, 2012. "Is there a material Kuznets curve for aluminium? evidence from rich countries," Resources Policy, Elsevier, vol. 37(3), pages 296-307.
    9. Mirdala, Rajmund, 2015. "Exchange Rate Pass-Through in the Euro Area," MPRA Paper 68862, University Library of Munich, Germany.
    10. Kurtović Safet & Šehić-Kršlak Sabina & Halili Blerim & Maxhuni Nehat, 2018. "Exchange Rate Pass-Through into Import Prices of Croatia," Naše gospodarstvo/Our economy, Sciendo, vol. 64(4), pages 60-73, December.
    11. 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.
    12. Ben Cheikh, Nidhaleddine & Ben Zaied, Younes, 2020. "Revisiting the pass-through of exchange rate in the transition economies: New evidence from new EU member states," Journal of International Money and Finance, Elsevier, vol. 100(C).
    13. Mirdala, Rajmund, 2013. "Exchange Rate Pass-Through to Domestic Prices under Different Exchange Rate Regimes," MPRA Paper 53209, University Library of Munich, Germany.
    14. Safet Kurtović & Blerim Halili & Nehat Maxhuni, 2019. "Exchange rate pass-through into import prices: evidence from Central and Southeast European countries," Indian Economic Review, Springer, vol. 54(1), pages 51-80, June.
    15. Younes Ben Zaied & Oussama Zouabi, 2016. "Impacts of climate change on Tunisian olive oil output," Climatic Change, Springer, vol. 139(3), pages 535-549, December.
    16. Comunale, Mariarosaria & Simola, Heli, 2018. "The pass-through to consumer prices in CIS economies: The role of exchange rates, commodities and other common factors," Research in International Business and Finance, Elsevier, vol. 44(C), pages 186-217.
    17. Vishal Jaunky, 2013. "Democracy and economic growth in Sub-Saharan Africa: a panel data approach," Empirical Economics, Springer, vol. 45(2), pages 987-1008, October.
    18. Dierk Herzer & Holger Strulik & Sebastian Vollmer, 2012. "The long-run determinants of fertility: one century of demographic change 1900–1999," Journal of Economic Growth, Springer, vol. 17(4), pages 357-385, December.
    19. Ozkan, Ibrahim & Erden, Lutfi, 2015. "Time-varying nature and macroeconomic determinants of exchange rate pass-through," International Review of Economics & Finance, Elsevier, vol. 38(C), pages 56-66.
    20. Jin, Taeyoung, 2022. "Impact of heat and electricity consumption on energy intensity: A panel data analysis," Energy, Elsevier, vol. 239(PA).
    21. Daniel, Betty C. & Shiamptanis, Christos, 2013. "Pushing the limit? Fiscal policy in the European Monetary Union," Journal of Economic Dynamics and Control, Elsevier, vol. 37(11), pages 2307-2321.
    22. García-Solanes, José & Sancho-Portero, F. Israel & Torrejón-Flores, Fernando, 2008. "Beyond the Balassa-Samuelson effect in some new member states of the European Union," Economic Systems, Elsevier, vol. 32(1), pages 17-32, March.

    More about this item

    Keywords

    Exchange Rate Pass-Through; Import Prices; Non-stationary Panels;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:49991. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.