Exchange rate pass-through in the Netherlands: has it changed?

Abstract

This study assesses whether the degree of exchange rate pass-through in the Netherlands has changed during the run-up to Economic and Monetary Union. VAR models are estimated on rolling sample periods to show that the pass-through of changes in the guilder-mark exchange rate has increased, while the pass-through of changes in the guilder-pound and guilder-dollar have remained more or less stable. This supports the view that the Netherlands and Germany have become increasingly integrated. This is in contrast to Taylor's (Economic Review 44, 1384–408, 2000 Taylor, JB . 2000. Low inflation, pass-through and the pricing power of firms. European Economic Review, 44: 1389–408. ) claim that the decline in inflation has been associated with a significant decline in the degree to which firms pass-through changes in costs.