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Exchange rate pass-through in a small open economy: the Anglo-Irish case

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Abstract:

Bilateral import unit values are constructed to investigate the extent and speed of exchange rate and production cost pass-through into the unit values of Irish imports (total and sectoral) from the UK using Menon's (1996) mark-up model. The approach used to measure exchange rate pass-through is based on cointegration and error-correction modelling and the period of analysis is from 1979 to 1995. Full pass-through from the bilateral Irish pound-Sterling exchange rate and from UK producer costs could not be rejected for total and sectoral import unit values for the sample period 1979q1-1995q4. This implies no role for domestic competing prices in explaining the long-run relationship determining unit values of Irish imports from the UK. The results indicate that for aggregate and sectoral unit values of Irish imports from the UK pass-through is incomplete in the short-run.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036840410001682142

Affiliations: Department of Economics University College Cork Western Road Cork Ireland, Email: e.doyle@ucc.ie

Publication date: March 1, 2004

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