Exchange Rate Pass‐through and Currency Invoicing: Implications for Monetary Integration in East Asia

Parsons, Craig; Sato, Kiyotaka

doi:10.1111/j.1467-9701.2006.00867.x

Cited by 11 publications

(16 citation statements)

References 34 publications

(61 reference statements)

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“…Thus, one could interpret this as proof of a great deal of pass-through in East Asia, reflecting the currency invoicing pattern of Japanese exports to East Asia, where about 50% is traded in yen. However, it must be noted that the bulk of international trade in this area is generally invoiced in US dollars (Parsons and Sato, 2006), and in particular electronics products may be traded in US dollars . 13 Thus, virtually no PTM in East Asian countries is occurring in destination market currencies.…”

Section: Estimation Resultsmentioning

confidence: 99%

New estimates of exchange rate pass‐through in Japanese exports

Parsons

Sato

2007

Int. J Fin Econ

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Recently, the issue of a decline in exchange rate pass-through has gained much more attention. Taylor conjectures that a worldwide decline in exchange rate pass-through is related to the low and stable inflation in many industrialized countries since the early 1990s. Developments of 'new open-economy macroeconomics' also cast renewed attention on exchange rate pass-through. Theoretical research shows that the choice of an optimal exchange rate regime and the transmission of monetary policy impacts depend crucially on the exporter's price setting behaviour. There are many studies on the pass-through of Japanese exports, yet most studies simply use the industry-breakdown data on export price indices, which is insufficient to assess pass-through patterns in regional trade. Significantly, highly disaggregated (HS 9-digit level) commodity data are used here to evaluate the extent of pass-through by commodity and by destination. We investigate and compare the extent of pass-through to East Asia, Europe, and the US. We also examine whether there is any difference in the degree of pass-through in the pre-and post-Asian crisis era. Results suggest the most pricing-to-market (PTM) occurs in exports to the US market followed by significant, but less PTM in Europe. Virtually no PTM is found in Japanese exports to East Asia. Also, there is no clear evidence of either increasing or decreasing pass-through over time.

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Section: Estimation Resultsmentioning

confidence: 99%

New estimates of exchange rate pass‐through in Japanese exports

Parsons

Sato

2007

Int. J Fin Econ

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“…Although there have been a large number of studies focusing on exchange rate pass‐through of Japanese trade such as Ohno (1989), Marston (1990), and Otani, Shiratsuka, and Shirota (2005), only a few attempts have been made at the exchange rate pass‐through of East Asian trade. See, for instance, Toh and Ho (2001), Sasaki (2005), and Parsons and Sato (2006). Parsons and Sato relate the pass‐through of East Asian exporters to their U.S. dollar invoicing behavior.…”

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confidence: 99%

Exchange Rate Changes and Inflation in Post‐Crisis Asian Economies: Vector Autoregression Analysis of the Exchange Rate Pass‐Through

Ito¹,

Sato²

2008

J of Money Credit Banking

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138

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Macro-economic consequences of large currency depreciations among the crisis-hit Asian economies varied from one country to another. Inflation did not soar after the Asian currency crisis of 1997-98 in most crisis-hit countries except Indonesia where high inflation followed a very large nominal depreciation of the rupiah. The high inflation meant a loss of price competitive advantage, a key for economic recovery from a crisis. This paper examines the pass-through effects of exchange rate changes on the domestic prices in the East Asian economies using a vector autoregression analysis. The main results are as follows: (i) the degree of exchange rate pass-through to import prices was quite high in the crisis-hit economies; (ii) the pass-through to Consumer Price Index (CPI) was generally low, with a notable exception of Indonesia; and (iii) in Indonesia, both the impulse response of monetary policy variables to exchange rate shocks and that of CPI to monetary policy shocks were positive, large, and statistically significant. Thus, Indonesia's accommodative monetary policy, coupled with the high degree of CPI responsiveness to exchange rate changes was an important factor in the inflation-depreciation spiral in the wake of the currency crisis. Copyright (c) 2008 The Ohio State University.

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“…In the previous literature, the choice of an invoicing currency is considered to influence pass‐through elasticity, e.g. Gopinath et al (), Devereux et al (), Parsons and Sato (), Goldberg and Tille () and Choudhri and Hakura (). If firms are flexible in switching invoice currency, it may weaken the accurateness of our estimation.…”

Section: Exchange Rate Reform In Chinamentioning

confidence: 99%

Price Adjustment to Exchange Rates and Forward‐looking Exporters: Evidence from USA–China Trade

Zhao

2016

Rev International Economics

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This paper shows that the pricing behavior of exporting firms exhibits a “forward‐looking” nature with sticky prices. As a result, the expectations of future exchange rates affect current prices at both the product level and firm level. We find evidence by employing both highly disaggregated Harmonized System (HS) 10‐digit product‐level import data of the USA and firm–product level customs data on China's exports to the USA. These findings provide evidence for a previously unexplored micro‐level forward‐looking nature of trade price adjustment as response to future exchange rates, and suggest a potentially important factor in helping explain incomplete exchange rate pass‐through.

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Exchange Rate Pass‐through and Currency Invoicing: Implications for Monetary Integration in East Asia

Cited by 11 publications

References 34 publications

New estimates of exchange rate pass‐through in Japanese exports

New estimates of exchange rate pass‐through in Japanese exports

Exchange Rate Changes and Inflation in Post‐Crisis Asian Economies: Vector Autoregression Analysis of the Exchange Rate Pass‐Through

Price Adjustment to Exchange Rates and Forward‐looking Exporters: Evidence from USA–China Trade

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