Ruhr Economic Papers

Ruhr Economic Papers #789

Exchange Rate Uncertainty and Import Prices in the Euro Area

by Boris Blagov

RWI, 12/2018, 37 S./p., 8 Euro, ISBN 978-3-86788-917-9 DOI: 10.4419/86788917

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Abstract

This paper analyses the effects of exchange rate uncertainty on the pricing behaviour of
import firms in the euro area. Uncertainty is measured via the volatility of the structural
shocks to the exchange rate in a non-linear VAR framework and is an important
determinant of import prices. An increase in exchange rate uncertainty is associated
with a fall in prices on average, which suggests that the exchange rate risk is borne by
the importers. The analysis utilizes a dataset on industrial import prices, disaggregated
by origin of imports. Controlling for intra- and extra-euro area trade is important.

JEL-Classification: C11, C22, F31

Keywords: Exchange rate uncertainty; exchange rate pass-through; non-linearities; import price inflation; extra-euro area trade

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