Working Paper: CEPR ID: DP4391
Authors: Jos Manuel Campa; Linda S. Goldberg
Abstract: We provide cross-country and time series evidence on the extent of exchange rate pass-through into the import prices of 25 OECD countries. Across the OECD and especially within manufacturing industries, we find compelling evidence of partial pass-through in the short run, rejecting both producer-currency pricing and local currency pricing. Over the long run, producer-currency pricing is more prevalent for many types of imported goods. We show that many countries have experienced changes in exchange rate pass-through over the past decades. While we find that countries with higher rates of exchange rate volatility are also those with higher pass-through elasticities, we also conclude that macroeconomic variables have played only a minor role in accounting for the evolution of OECD pass-through over time. Far more important for pass-through changes have been the dramatic shifts in the composition of country import bundles.
Keywords: exchange rates; passthrough; trade composition
JEL Codes: F30; F40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| exchange rate movements (F31) | import prices (P22) |
| exchange rate volatility (F31) | passthrough rates (G19) |
| changes in the composition of countries' import bundles (F14) | passthrough rates (G19) |
| exchange rate movements (F31) | passthrough rates (G19) |