ABSTRACT
We produce empirical evidence on the pass-through phenomenon for the leading European countries on a statistically comparable basis by using the OECD foreign trade data on the basis of the five-digit SITC classification. In order to assess the importance of simultaneity in estimating the pass-through coefficients in a context of monopolistic competition we have implemented the Limited Information Instrumental Variable Efficient (LIVE) method. The comparison of the OLS and LIVE estimates shows that the pass-through coefficients obtained with LIVE tend to be higher in absolute value and more significant than OLS coefficients. Furthermore, the performance of the equation estimated with LIVE is generally more satisfactory.
