Exchange Rate Pass‐through and Currency Invoicing: Implications for Monetary Integration in East Asia

Abstract

Exporter's price-setting behaviour and currency invoicing play a key role in the literature on the new open-economy macroeconomics. This paper estimates exchange rate pass-through coefficients for the exports of four ASEAN countries: Indonesia, Malaysia, the Philippines and Thailand. In addition, previous estimates of pass-through as well as invoicing behaviour in East Asia are discussed in the context of regional integration. The new pass-through coefficients are estimated under two alternate specifications for up to 34 goods for each of the four ASEAN countries destined for up to 13 major markets. The results suggest: (a) little pass-through is occurring in Southeast Asia and (b) this lack of pass-through is more likely attributable to the fact that they are small countries in a relatively integrated market, rather than evidence of pricing to market. The implications for regional monetary integration of this apparently low degree of pass-through are detailed. Copyright 2006 The Authors Journal compilation Blackwell Publishing Ltd. 2006 .

New estimates of exchange rate pass‐through in Japanese exports

“…Thus, one could interpret this as proof of a great deal of pass-through in East Asia, reflecting the currency invoicing pattern of Japanese exports to East Asia, where about 50% is traded in yen. However, it must be noted that the bulk of international trade in this area is generally invoiced in US dollars (Parsons and Sato, 2006), and in particular electronics products may be traded in US dollars . 13 Thus, virtually no PTM in East Asian countries is occurring in destination market currencies.…”

Exchange Rate Changes and Inflation in Post‐Crisis Asian Economies: Vector Autoregression Analysis of the Exchange Rate Pass‐Through

“…Although there have been a large number of studies focusing on exchange rate pass‐through of Japanese trade such as Ohno (1989), Marston (1990), and Otani, Shiratsuka, and Shirota (2005), only a few attempts have been made at the exchange rate pass‐through of East Asian trade. See, for instance, Toh and Ho (2001), Sasaki (2005), and Parsons and Sato (2006). Parsons and Sato relate the pass‐through of East Asian exporters to their U.S. dollar invoicing behavior.…”

Price Adjustment to Exchange Rates and Forward‐looking Exporters: Evidence from USA–China Trade

“…In the previous literature, the choice of an invoicing currency is considered to influence pass‐through elasticity, e.g. Gopinath et al (), Devereux et al (), Parsons and Sato (), Goldberg and Tille () and Choudhri and Hakura (). If firms are flexible in switching invoice currency, it may weaken the accurateness of our estimation.…”