ASYMMETRIC EFFECTS OF EXCHANGE RATE PASS-THROUGH: AN EMPIRICAL ANALYSIS AMONG CHINA, THE UNITED STATES AND JAPAN

Yezheng Liu, Jun Liu

School of Management, Hefei University of Technology, No.193, Tun Xi Road Hefei, Anhui, China

From the perspective of exchange rate direction fluctuations, this paper comparatively studied the asymmetric effect of movements in the nominal exchange rate on consumer prices among China, the United States, and Japan. To this end, the paper used the error correction model (ECM) to conduct an empirical analysis from the first season of 1994 to the last season of 2010 period. The results showed that: (1) the pass-through of exchange rate movements to consumer prices was incomplete; (2) exchange rates fluctuated in different directions, meaning that when the exchange rate appreciated and depreciated, the pass-through of exchange rate movements to consumer prices was asymmetric. However, the direction varied among the three countries. The influence of depreciation on consumer prices was higher in both China and the United States, while Japan was the opposite; (3) exchange rate pass-through was different in the three countries. The level of exchange rate pass-through in China was higher than the other two countries; (4) when short-term fluctuations deviated from long-term equilibrium, the adjustment was higher in the United States, followed by Japan, and China was relatively lower. These results had important implications for current monetary policies and practices.