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2020-04-06

Testing for complete pass-through of exchange rate without trade barriers

Abstract

The objective of this paper is to test whether the complete pass-through of exchange rate exists when there are almost no transaction costs and in the environment of competitive market. In general, the literature claims that the pass-through of exchange rate is incomplete due to imperfect market, i.e. the presence of transaction costs and imperfect competition. The quasi-experimental case of the food import to Hong Kong from Mainland China is considered in the analysis. The results show that the pass-through of the exchange rate of Chinese RMB against to US dollar to Hong Kong’s food import price is complete in long-run equilibrium. Besides, the short-run adjustment significantly contributes to correcting the deviation from the long-run pass-through effect. Moreover, the complete pass-through still exists after accounting for the effects of asymmetry and volatility. Therefore, this paper contributes to the literature by providing empirical evidence that the complete pass-through of exchange rate can exist in the real world.

 

Keywords: pass-through, exchange rate, RMB, quasi-experimental environment, error correction model, quantile regression

 

Impact Factor: 1.855 (2018 Journal Citation Reports, Clarivate Analytics, 2019)

 

 

Zhang, T., Li , T., Baležentis, T., Štreimikienė, D. 2020. Testing for complete pass-through of exchange rate without trade barriers. Journal of Business Economics and Management, 21(2), 543-563; ISSN 1611-1699 / eISSN 2029-4433; https://doi.org/10.3846/jbem.2020.12219; [Academic Journal Guide 2018; Clarivate Analytics databases: Social Sciences Citation Index (Web of Science Core Collection); Journal Citation Reports (SSCI edition); Scopus].

 




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