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Pricing-to-Market Using EGARCH-Error Correction Model

Pricing-to-Market Using EGARCH-Error Correction Model

Baoying Lai, Nathan Lael Joseph
Copyright: © 2012 |Volume: 3 |Issue: 1 |Pages: 59
ISSN: 1947-8569|EISSN: 1947-8577|EISBN13: 9781466614253|DOI: 10.4018/jsds.2012010101
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MLA

Lai, Baoying, and Nathan Lael Joseph. "Pricing-to-Market Using EGARCH-Error Correction Model." IJSDS vol.3, no.1 2012: pp.1-59. http://doi.org/10.4018/jsds.2012010101

APA

Lai, B. & Joseph, N. L. (2012). Pricing-to-Market Using EGARCH-Error Correction Model. International Journal of Strategic Decision Sciences (IJSDS), 3(1), 1-59. http://doi.org/10.4018/jsds.2012010101

Chicago

Lai, Baoying, and Nathan Lael Joseph. "Pricing-to-Market Using EGARCH-Error Correction Model," International Journal of Strategic Decision Sciences (IJSDS) 3, no.1: 1-59. http://doi.org/10.4018/jsds.2012010101

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Abstract

In this paper, the authors use an exponential generalized autoregressive conditional heteroscedastic (EGARCH) error-correction model (ECM), that is, EGARCH-ECM, to estimate the pass-through effects of foreign exchange (FX) rates and producers’ prices for 20 U.K. export sectors. The long-run adjustment of export prices to FX rates and producers’ prices is within the range of -1.02% (for the Textiles sector) and -17.22% (for the Meat sector). The contemporaneous pricing-to-market (PTM) coefficient is within the range of -72.84% (for the Fuels sector) and -8.05% (for the Textiles sector). Short-run FX rate pass-through is not complete even after several months. Rolling EGARCH-ECMs show that the short and long-run effects of FX rate and producers’ prices fluctuate substantially as are asymmetry and volatility estimates before equilibrium is achieved.

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