Pricing-to-market and the volatility of UK export prices

Baoying Lai, Nathan Lael Joseph

Research output: Contribution to journalArticle

Abstract

This empirical study examines the Pricing-To-Market (PTM) behaviour of 20 UK export sectors. Using both Exponential General Autoregressive Conditional Heteroscedasticity (EGARCH) and Threshold GARCH (TGARCH) estimation methods, we find evidence of PTM that is accompanied by strong conditional volatility and weak asymmetry effects. The PTM estimates suggest that when the currency of exporters appreciates in the current period, exporters pass-on between 31% and 94% of the Foreign Exchange (FX) rate increase to importers. However, both export price changes and producers' prices are sluggish, perhaps being driven by coordination failure and menu driven costs, amongst others. Furthermore, export prices contain strong time varying effects which impact on PTM strategy. Exporters do not typically appear to put much more weight on negative news of (say) an FX rate appreciation compared to positive news of an FX rate depreciation. Much depends on the export sector. © 2010 Taylor & Francis.
Original languageEnglish
Pages (from-to)1441-1460
Number of pages20
JournalApplied Financial Economics
Volume20
Issue number18
DOIs
Publication statusPublished - 13 Sep 2010
Externally publishedYes

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