Exchange Rate Pass-Through, Asymmetric Responses and Market Shares
This study examines ERPT with asymmetric response and both import and export market shares, using wool trade data. The study found that, asymmetric response may be as common as symmetric response. In addition, the responses (both in price and quantity demanded) to the changes in exchange rate are co...
| Main Author: | |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
Korea Development Institute
2005-06-01
|
| Series: | KDI Journal of Economic Policy |
| Subjects: | |
| Online Access: | https://doi.org/10.23895/kdijep.2005.27.1.185 |
| Summary: | This study examines ERPT with asymmetric response and both import and export market shares, using wool trade data. The study found that, asymmetric response may be as common as symmetric response. In addition, the responses (both in price and quantity demanded) to the changes in exchange rate are considerably different across goods, and even for the homogenous goods, across countries. In case of depreciation, the export price changes more than appreciation case in general, and as a result the destination price changes less. It is also found that the cases of excessive or perverse pass-through are found more frequently than reported by previous studies. This finding points out that strategic behavior of firms or unexpected response to exchange rate fluctuation takes place more frequently than we commonly expect or take, in particular at disaggregated levels. When the model considers asymmetric responses of the export price to appreciation and depreciation (of exporter's currency), the estimation provided that for 39 trade cases out of 83, export price responded to appreciation and depreciation in different fashions, although the normal response was the dominating phenomenon with 99 cases or about 60% out of 166 cases. Market shares affected the extent and direction of responses in select cases. These findings will have important implications for policy makers and traders. |
|---|---|
| ISSN: | 2586-2995 2586-4130 |