Trade liberalisation and import price behaviour: the case of textiles and wearing apparels

Arbeitspapier

Previous studies on the relationship between exchange rates and traded goods prices typically find evidence of incomplete pass-through, usually explained by pricing-to-market behaviour. Although economic theory predicts that incomplete pass-through may also be linked to presence of non-tariff barriers to trade, variables reflecting such a link is rarely included in existing empirical models. In this paper, we estimate a pricing-to-market model for Norwegian import prices on textiles and wearing apparels, controlling explicitly for the removal of non-tariff barriers to trade and the shift in imports from high-cost to low-cost countries through a Törnqvist price index based measure of foreign prices. We show that this measure of foreign prices unlike standard measures used in the literature is likely to produce unbiased estimates of the degree of pass-through, and thereby also the extent of pricing-to-market behaviour. Finally, we demonstrate that the estimated import price equation is reasonably stable and exhibits no serious forecasting failures. These findings contradict the hypothesis that pass-through has changed alongside trade policy shifts during the second half of the 1990s and the monetary policy regime shift in 2001.

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• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Discussion Papers ; No. 605

Classification and Topics

• Classification: Wirtschaft ; Single Equation Models; Single Variables: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes ; Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models ; Index Numbers and Aggregation; Leading indicators ; Price Level; Inflation; Deflation
• Subject: Trade liberalisation ; import prices ; pricing-to-market ; exchange rate pass-through ; vector autoregressive models.

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Benedictow, Andreas ; Boug, Pål
• Event: Veröffentlichung
• (who): Statistics Norway, Research Department
• (where): Oslo
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/192587