Exchange Rate Pass-Through in New Member States and Candidate Countries of the EU

Ramón María-Dolores Pedrero
2008 Social Science Research Network  
This paper studies the pass-through of exchange rate changes into the prices of imports that originated inside the euro area made by some New Member States (NMSs) of the European Union and one candidate country (Turkey). I use data on import unit values for nine different product categories and bilateral imports from the euro area for each country and I estimate industry-specifi c rates of pass-through across and within countries using two different methodological approaches. The fi rst one is
more » ... ased on Campa and González-Mínguez (2006) which estimates the short-and long-run pass through elasticities, where long-run elasticities are defi ned as the sum of the pass-through coeffi cients for the contemporaneous exchange rate and its fi rst four lags. The second one is employed by de Bandt, Banerjee and Kozluk (2007) which suggests a long-run Engle and Granger (1987) cointegrating relationship and the possibility of structural breaks to restore the long-run in the estimation. I did not fi nd evidence either in favour of the hypothesis of Local Currency Pricing (zero pass-through) or the hypothesis of Producer Currency Pricing (complete pass-through) for all the countries except Slovenia and Cyprus in the latter. The exchange rate pass-through ranged from 0.090 to 2.916 in the short-run and from 0.102 to 2.242 in the long-run. With reference to the results by industry the lowest values for exchange rate pass-through are in Manufacturing sectors. However, I did observe a exchange rate pass-through decline through the pricing chain and a large dependence of their economies on imported inputs.
doi:10.2139/ssrn.1287563 fatcat:sxqnbtoupzbbpnksjjk5mqn7iu