Pricing-to-Market Using EGARCH-Error Correction Model

Baoying Lai; Nathan Lael Joseph

doi:10.4018/jsds.2012010101

Pricing-to-Market Using EGARCH-Error Correction Model

Baoying Lai, Nathan Lael Joseph

Research output: Contribution to journal › Article › peer-review

Abstract

In this paper, the authors use an exponential generalized autoregressive conditional heteroscedastic (EGARCH) error-correction model (ECM), that is, EGARCH-ECM, to estimate the pass-through effects of foreign exchange (FX) rates and producers’ prices for 20 U.K. export sectors. The long-run adjustment of export prices to FX rates and producers’ prices is within the range of -1.02% (for the Textiles sector) and -17.22% (for the Meat sector). The contemporaneous pricing-to-market (PTM) coefficient is 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 FX rate and producers’ prices fluctuate substantially as are asymmetry and volatility estimates before equilibrium is achieved.

Original language	English
Article number	1
Pages (from-to)	1-59
Number of pages	59
Journal	International Journal of Strategic Decision Sciences
Volume	3
Issue number	1
DOIs	https://doi.org/10.4018/jsds.2012010101
Publication status	Published - 3 Apr 2012
Externally published	Yes

Keywords

Cointegration
Error Correction Model (ECM)
s, Exponential Generalized AutoregressiveConditionalHeteroscedastic(EGARCH)
Pricing-to-market
,RollingRegressions

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10.4018/jsds.2012010101

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title = "Pricing-to-Market Using EGARCH-Error Correction Model",

abstract = "In this paper, the authors use an exponential generalized autoregressive conditional heteroscedastic (EGARCH) error-correction model (ECM), that is, EGARCH-ECM, to estimate the pass-through effects of foreign exchange (FX) rates and producers{\textquoteright} prices for 20 U.K. export sectors. The long-run adjustment of export prices to FX rates and producers{\textquoteright} prices is within the range of -1.02% (for the Textiles sector) and -17.22% (for the Meat sector). The contemporaneous pricing-to-market (PTM) coefficient is 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 FX rate and producers{\textquoteright} prices fluctuate substantially as are asymmetry and volatility estimates before equilibrium is achieved.",

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N2 - In this paper, the authors use an exponential generalized autoregressive conditional heteroscedastic (EGARCH) error-correction model (ECM), that is, EGARCH-ECM, to estimate the pass-through effects of foreign exchange (FX) rates and producers’ prices for 20 U.K. export sectors. The long-run adjustment of export prices to FX rates and producers’ prices is within the range of -1.02% (for the Textiles sector) and -17.22% (for the Meat sector). The contemporaneous pricing-to-market (PTM) coefficient is 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 FX rate and producers’ prices fluctuate substantially as are asymmetry and volatility estimates before equilibrium is achieved.

AB - In this paper, the authors use an exponential generalized autoregressive conditional heteroscedastic (EGARCH) error-correction model (ECM), that is, EGARCH-ECM, to estimate the pass-through effects of foreign exchange (FX) rates and producers’ prices for 20 U.K. export sectors. The long-run adjustment of export prices to FX rates and producers’ prices is within the range of -1.02% (for the Textiles sector) and -17.22% (for the Meat sector). The contemporaneous pricing-to-market (PTM) coefficient is 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 FX rate and producers’ prices fluctuate substantially as are asymmetry and volatility estimates before equilibrium is achieved.

KW - Cointegration

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Pricing-to-Market Using EGARCH-Error Correction Model

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Keywords

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