Asymmetry of the exchange rate pass-through: An exercise on the Polish data.

We propose a complex analysis of the exchange rate pass-through in an open economy. We assess the level, linearity and symmetry of exchange rate pass-through to import and consumer prices in Poland and discuss its implications for the monetary policy. We show that the pass-through is incomplete even in the long run. There is pricing to market behavior both in the long and short run. We do not find a strong evidence of non-linearity in import prices reaction to the exchange rate and reject the hypothesis of an asymmetric response to appreciations and depreciations. On the other hand, we find an asymmetry of CPI responses to the output gap, direction and size of the exchange rate changes and to the magnitude of the exchange rate volatility. The asymmetry is mostly visible after exogenous shocks. We reject the hypothesis of an asymmetric reaction of prices in a high and low inflation environment.