Exchange Rate Pass-Through in the Euro Area : The Role of Asymmetric Pricing Behavior

Exchange rate pass-through in a set of euro area prices along the pricing chain is examined. Using a vector autoregression (VAR) approach, the empirics analyze the joint time-series behavior of the euro exchange rate and a system of euro-area prices in response to an exchange rate shock. The impulse-response functions from the VAR estimates are used to identify-in a 'new open economy macroeconomics model'-those key behavioral parameters that best replicate the pattern of exchange rate pass-through in the euro area. Area-wide prices are found to display incomplete pass-through, consistent with euro currency-pricing and pricing-to-market behavior. The results are compared to those for the other major industrial economies, and suggest that, as with the United States, "expenditure-switching" effects on the current account still operate but are generally small.
Publication date: January 2004
ISBN: 9781451843156
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Economics- Macroeconomics , Economics- Macroeconomics , Economics / General , Economics / General , International - Economics , International - Economics , New Open Economy Macroeconomic Models , exchange rate , exchange rate pass , import prices , exchange rate shock , export prices , Open Economy Macroeconomics

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