Working Paper: CEPR ID: DP4389
Authors: Jos Manuel Campa; Jose Manuel Gonzlez Mnguez
Abstract: This Paper focuses on the pass-through of exchange rate changes into the prices of imports made by euro area countries originating outside the area. Using data on import unit values for 13 different product categories for each country, we estimate industry-specific rates of pass-through across and within countries for all euro members. In the short run, pass-through rates differ across industries and countries and are less than one. In the long run neither full pass-through nor equality of pass-through rates across industries and countries can be rejected. Differences exist across euro area countries in the degree that a common exchange rate movement gets transmitted into consumer prices and costs of production indices. Most of these differences in transmission rates are due to the distinct degree of openness of each country to non-euro area imports rather than to the heterogeneity in the structure of imports.
Keywords: euro; exchange rate; monetary union; passthrough
JEL Codes: F31; F36; F42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| exchange rate changes (F31) | import prices (P22) |
| openness to imports (F10) | passthrough rates (G19) |
| passthrough rates (G19) | inflation rates (E31) |
| exchange rate movements (F31) | aggregate prices (P22) |
| trade structures (F19) | differential effects of exchange rate movements (F31) |