Invoice currency choice, nonlinearities and exchange rate pass-through

Document Type

Journal Article

Publication Title

Applied Economics

Publisher

Routledge

School

School of Business and Law

RAS ID

34002

Comments

Nguyen, T.-N. A., & Sato, K. (2020). Invoice currency choice, nonlinearities and exchange rate pass-through. Applied Economics, 52(10), 1048-1069. https://doi.org/10.1080/00036846.2019.1650884

Abstract

Estimating time-varying thresholds as a proxy for exporter’s predicted exchange rates, this study proposes a new approach to analyse possible asymmetric behaviour of exchange rate pass-through (ERPT) or pricing-to-market (PTM) in Japanese exports between yen appreciation and depreciation periods. Constructing the industry-specific nominal effective exchange rate on a contract (invoice) currency basis, we perform the multivariate threshold near-vector autoregressive (near-MTVAR) estimation and reveal a strong tendency of symmetric ERPT in the short-run, between yen appreciation and depreciation periods. From the 2000s, however, Japanese machinery exporters increased the degree of PTM even in the long-run, while other industries raised the degree of long-run ERPT, reflecting the difference of product differentiation across industries. This evidence has significant implications for the recent unresponsiveness of the Japanese trade balance to the large depreciation of the yen.

DOI

10.1080/00036846.2019.1650884

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