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Passthrough Estimates and the Choice of an Exchange Rate Index

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  • Patricia S. Pollard
  • Cletus C. Coughlin

Abstract

We examine exchange rate passthrough into US import prices for 29 manufacturing industries using eight exchange rate indexes. These indexes vary by the number of currencies included; whether the weight on each currency is based on total trade with the United States or solely imports; and, whether the weights vary by industry. Our results indicate that passthrough is generally incomplete but varies across industries. Moreover, passthrough is sensitive to the exchange rate index. Using bootstrapped J -tests we show that major currency indexes perform better than their broad currency counterparts. When using a major currency index, industry-specific exchange rate indexes are preferred to aggregate indexes. Copyright � 2006 The Authors; Journal compilation � 2006 Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 14 (2006)
Issue (Month): 4 (09)
Pages: 535-553

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Handle: RePEc:bla:reviec:v:14:y:2006:i:4:p:535-553

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  1. Feenstra, Robert C., 1989. "Symmetric pass-through of tariffs and exchange rates under imperfect competition: An empirical test," Journal of International Economics, Elsevier, Elsevier, vol. 27(1-2), pages 25-45, August.
  2. Giancarlo CORSETTI & Luca DEDOLA, 2003. "Macroeconomics of International Price Discrimination," Economics Working Papers, European University Institute ECO2003/20, European University Institute.
  3. Wing T. Woo, 1984. "Exchange Rates and the Prices of Nonfood, Nonfuel Products," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 15(2), pages 511-536.
  4. Jose Manuel Campa & Linda S. Goldberg, 2002. "Exchange Rate Pass-Through into Import Prices: A Macro or Micro Phenomenon?," NBER Working Papers 8934, National Bureau of Economic Research, Inc.
  5. Bernhofen, Daniel M. & Xu, Peng, 2000. "Exchange rates and market power: evidence from the petrochemical industry," Journal of International Economics, Elsevier, Elsevier, vol. 52(2), pages 283-297, December.
  6. Linda S. Goldberg, 2004. "Industry-specific exchange rates for the United States," Economic Policy Review, Federal Reserve Bank of New York, Federal Reserve Bank of New York, issue May, pages 1-16.
  7. Bruce A. Blonigen & Stephen E. Haynes, 2002. "Antidumping Investigations and the Pass-Through of Antidumping Duties and Exchange Rates," American Economic Review, American Economic Association, American Economic Association, vol. 92(4), pages 1044-1061, September.
  8. Pinelopi K. Goldberg & Michael M. Knetter, 1996. "Goods Prices and Exchange Rates: What Have We Learned?," NBER Working Papers 5862, National Bureau of Economic Research, Inc.
  9. Jiawen Yang, 1992. "Exchange Rate Pass-Through in U.S. Manufacturing Industries," Working Papers, New York University, Leonard N. Stern School of Business, Department of Economics 92-28, New York University, Leonard N. Stern School of Business, Department of Economics.
  10. Betts, Caroline & Devereux, Michael B., 2000. "Exchange rate dynamics in a model of pricing-to-market," Journal of International Economics, Elsevier, Elsevier, vol. 50(1), pages 215-244, February.
  11. Giovanni P. Olivei, 2002. "Exchange rates and the prices of manufacturing products imported into the United States," New England Economic Review, Federal Reserve Bank of Boston, Federal Reserve Bank of Boston, issue Q 1, pages 3 - 18.
  12. Cletus C. Coughlin & Patricia S. Pollard, 1996. "A question of measurement: is the dollar rising or falling?," Review, Federal Reserve Bank of St. Louis, Federal Reserve Bank of St. Louis, issue Jul, pages 3-18.
  13. Feinberg, Robert M, 1991. "The Choice of Exchange-Rate Index and Domestic Price Passthrough," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 39(4), pages 409-20, June.
  14. Gron, Anne & Swenson, Deborah L, 1996. "Incomplete Exchange-Rate Pass-Through and Imperfect Competition: The Effect of Local Production," American Economic Review, American Economic Association, American Economic Association, vol. 86(2), pages 71-76, May.
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Cited by:
  1. Guillaume Gaulier & Amina Lahrèche-Révil & Isabelle Méjean, 2006. "Exchange-Rate Pass-Trough at the Product Level," Working Papers 2006-02, CEPII research center.
  2. Julia Ferreira Torracca & David Kupfe, 2014. "A Evolução Da Taxa De Câmbio Efetiva Real Setorial E A Mudança Estrutural No Padrão De Comércio Da Indústria Brasileira," Anais do XLI Encontro Nacional de Economia [Proceedings of the 41th Brazilian Economics Meeting], ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Gra 114, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  3. Pradyut Kumar Pyne & Saikat Sinha Roy, 2009. "Exchange Rate Pass-Through in India an Exploration with Sectoral Import Prices," DEGIT Conference Papers, DEGIT, Dynamics, Economic Growth, and International Trade c014_038, DEGIT, Dynamics, Economic Growth, and International Trade.
  4. Linda S. Goldberg, 2004. "Industry-specific exchange rates for the United States," Economic Policy Review, Federal Reserve Bank of New York, Federal Reserve Bank of New York, issue May, pages 1-16.

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