The asymmetric response of domestic prices to changes in import prices: A cointegration test of the ratchet effect

This paper is an empirical study of the possibility that, in the shea run, the domestic price level responds asymmetrically to import price changes, u sing the multivariate cointegration approach. For a sample of five major in dustrial countries, we find that, in most cases, the general price level ri ses more readily than it falls.