Pass-through of import cost into consumer prices and inflation in GCC countries: Evidence from a nonlinear autoregressive distributed lags model

Abstract

This paper explores the asymmetric response of consumer prices to import costs using a nonlinear approach that investigates the long and the short run asymmetric pass-through. Quarterly data over the period of 1990-2014 for Gulf Corporation Council (GCC) countries and their trade partners is used to construct the index of imports cost. The estimated nonlinear autoregressive distributed lags model reveals a stronger import cost pass-through of depreciation than appreciation. We also investigate the underlying relationship between the selected variables by conducting asymmetric causality tests. The results reveal that the import cost factor has an asymmetric causal impact on the level of prices in GCC countries. Our findings provide new insights on the import cost pass-through that might be useful to consumers and policy makers. 2020 Elsevier Inc.