Pricing-to-market using EGARCH-error correction model

Baoying Lai, Nathan L. Joseph

Research output: Contribution to journalArticle

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 languageEnglish
Pages (from-to)1-59
Number of pages59
JournalInternational Journal of Strategic Decision Sciences
Volume3
Issue number1
DOIs
Publication statusPublished - 2012

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Pricing-to-market
Error correction model
Producer prices
Short-run
Pass-through
Meat
Foreign exchange rates
Extracellular matrix
Asymmetry
Coefficients
Export prices

Cite this

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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’ 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.",
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Pricing-to-market using EGARCH-error correction model. / Lai, Baoying; Joseph, Nathan L.

In: International Journal of Strategic Decision Sciences, Vol. 3, No. 1, 2012, p. 1-59.

Research output: Contribution to journalArticle

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AU - Joseph, Nathan L.

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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.

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