Exchange rate pass-through for Australian imports of motor vehicles: A conintegration approach
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Date
2022
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Abstract
The study examines the pass-through relationship of exchange rate changes to prices of Australian imports of passenger motor vehicle (PMVs) for the period 1981.3 to 1990.2. A model which relates the import pricing decision to changes in the exchange rate, production costs and competing prices is estimated. To confront the problem of spurious regressions, the variables are tested for the presence of unit roots. Having identified co-integrated variables the Engle-Granger two-step procedure is employed to estimate the model. Unlike previous findings, our results support the view that the pass-through of exchange rate changes to import prices is incomplete even in the long run. The presence of quantitative restrictions (QRs) and the pricing practices on intra-firm sales of the small number of multinational firms that dominate this industry are put forward as possible explanations for the incomplete pass-through finding.
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Exchange rate, Motor vehicle industry, Economic procedure