In this chapter, the authors use an EGARCH-ECM to estimate the pass-through effects of Foreign Exchange (FX) rate changes and changes in producers' prices for 20 U.K. export sectors. The long-run adjustments of export prices to FX rate changes and changes in producers' prices are within the range of -1.02% (for the Textiles sector) and -17.22% (for the Meat sector). The contemporaneous Pricing-To-Market (PTM) coefficients are within the range of -72.84% (for the Fuels sector) and -8.05% (for the Textiles sector). Short-run FX rate pass-through is not complete even after several months. Rolling EGARCH-ECMs show that the short and long-run effects of changes in FX rate and producers' prices vary substantially, as do asymmetry and volatility estimates before equilibrium is achieved.
|Title of host publication||Analytical Approaches to Strategic Decision-Making: Interdisciplinary Considerations|
|Number of pages||52|
|Publication status||Published - 30 Apr 2014|
|Name||Analytical Approaches to Strategic Decision-Making: Interdisciplinary Considerations|
Lai, B., & Joseph, N. L. (2014). Modeling foreign exchange rate pass-through using the exponential GARCH. In M. Tavana (Ed.), Analytical Approaches to Strategic Decision-Making: Interdisciplinary Considerations (pp. 139-190). (Analytical Approaches to Strategic Decision-Making: Interdisciplinary Considerations). IGI Global. https://doi.org/10.4018/978-1-4666-5958-2.ch008