Invoicing Currency and Symmetric Pass-Through of Exchange Rates and Tariffs : Evidence from Malawian Imports from the EU

The response of import prices to exchange rates can be used to predict the effect of changes in trade policy. The hypothesis of symmetric pass-through of tariffs and exchange rates asserts that the effect of tariffs and exchange rates on prices are...

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Main Author: Montfaucon, Angella Faith
Format: Working Paper
Language:English
Published: World Bank, Washington, DC 2021
Subjects:
Online Access:http://documents.worldbank.org/curated/en/454671615479048464/Invoicing-Currency-and-Symmetric-Pass-Through-of-Exchange-Rates-and-Tariffs-Evidence-from-Malawian-Imports-from-the-EU
http://hdl.handle.net/10986/35286
id okr-10986-35286
recordtype oai_dc
spelling okr-10986-352862022-09-20T00:09:55Z Invoicing Currency and Symmetric Pass-Through of Exchange Rates and Tariffs : Evidence from Malawian Imports from the EU Montfaucon, Angella Faith EXCHANGE RATE EURO AREA INVOICING CURRENCY TARIFF PASS-THROUGH VEHICLE PRICING The response of import prices to exchange rates can be used to predict the effect of changes in trade policy. The hypothesis of symmetric pass-through of tariffs and exchange rates asserts that the effect of tariffs and exchange rates on prices are identical. This paper examines whether the symmetry hypothesis holds in the context of invoicing currency, by investigating the role of the euro and the U.S dollar currencies. The paper uses transaction-level data of Malawian imports from the European Union (EU) over a 12-year period, separating imports from the Economic and Monetary Union (EMU) members and non-members and across sectors. The findings show that the dollar has the highest invoicing share, and the pass-through rate of exchange rate and tariff shocks on to Malawian consumers is high. Symmetry holds when bilateral exchange rates are used, but when the invoicing currency is considered there are deviations from symmetry. This result implies that to predict the effects of trade policy based on import prices' responses to the exchange rate, bilateral exchange rates are not suitable for capturing exchange rate and tariff pass-through. The variations in the results across EMU and non-EMU, currencies, and industries demonstrates that that empirical evidence is needed in each case to understand the extent of pass-through, which is crucial for import-dependent developing countries such as Malawi. 2021-03-18T13:21:27Z 2021-03-18T13:21:27Z 2021-03 Working Paper http://documents.worldbank.org/curated/en/454671615479048464/Invoicing-Currency-and-Symmetric-Pass-Through-of-Exchange-Rates-and-Tariffs-Evidence-from-Malawian-Imports-from-the-EU http://hdl.handle.net/10986/35286 English Policy Research Working Paper;No. 9577 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper Africa Africa Eastern and Southern (AFE) European Union Malawi
repository_type Digital Repository
institution_category Foreign Institution
institution Digital Repositories
building World Bank Open Knowledge Repository
collection World Bank
language English
topic EXCHANGE RATE
EURO AREA
INVOICING CURRENCY
TARIFF PASS-THROUGH
VEHICLE PRICING
spellingShingle EXCHANGE RATE
EURO AREA
INVOICING CURRENCY
TARIFF PASS-THROUGH
VEHICLE PRICING
Montfaucon, Angella Faith
Invoicing Currency and Symmetric Pass-Through of Exchange Rates and Tariffs : Evidence from Malawian Imports from the EU
geographic_facet Africa
Africa Eastern and Southern (AFE)
European Union
Malawi
relation Policy Research Working Paper;No. 9577
description The response of import prices to exchange rates can be used to predict the effect of changes in trade policy. The hypothesis of symmetric pass-through of tariffs and exchange rates asserts that the effect of tariffs and exchange rates on prices are identical. This paper examines whether the symmetry hypothesis holds in the context of invoicing currency, by investigating the role of the euro and the U.S dollar currencies. The paper uses transaction-level data of Malawian imports from the European Union (EU) over a 12-year period, separating imports from the Economic and Monetary Union (EMU) members and non-members and across sectors. The findings show that the dollar has the highest invoicing share, and the pass-through rate of exchange rate and tariff shocks on to Malawian consumers is high. Symmetry holds when bilateral exchange rates are used, but when the invoicing currency is considered there are deviations from symmetry. This result implies that to predict the effects of trade policy based on import prices' responses to the exchange rate, bilateral exchange rates are not suitable for capturing exchange rate and tariff pass-through. The variations in the results across EMU and non-EMU, currencies, and industries demonstrates that that empirical evidence is needed in each case to understand the extent of pass-through, which is crucial for import-dependent developing countries such as Malawi.
format Working Paper
author Montfaucon, Angella Faith
author_facet Montfaucon, Angella Faith
author_sort Montfaucon, Angella Faith
title Invoicing Currency and Symmetric Pass-Through of Exchange Rates and Tariffs : Evidence from Malawian Imports from the EU
title_short Invoicing Currency and Symmetric Pass-Through of Exchange Rates and Tariffs : Evidence from Malawian Imports from the EU
title_full Invoicing Currency and Symmetric Pass-Through of Exchange Rates and Tariffs : Evidence from Malawian Imports from the EU
title_fullStr Invoicing Currency and Symmetric Pass-Through of Exchange Rates and Tariffs : Evidence from Malawian Imports from the EU
title_full_unstemmed Invoicing Currency and Symmetric Pass-Through of Exchange Rates and Tariffs : Evidence from Malawian Imports from the EU
title_sort invoicing currency and symmetric pass-through of exchange rates and tariffs : evidence from malawian imports from the eu
publisher World Bank, Washington, DC
publishDate 2021
url http://documents.worldbank.org/curated/en/454671615479048464/Invoicing-Currency-and-Symmetric-Pass-Through-of-Exchange-Rates-and-Tariffs-Evidence-from-Malawian-Imports-from-the-EU
http://hdl.handle.net/10986/35286
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