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Exchange rates and the prices of manufacturing products imported into the United States

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Author Info
Giovanni P. Olivei

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Abstract

Local-currency prices of foreign products do not usually respond one-for-one to changes in the exchange rate. The extent and pervasiveness of this incomplete "pass-through" of exchange rates to import prices has long been debated. Yet, despite the abundance of empirical research on the relationship between exchange rates and import prices, there is little systematic evidence on the time-series dimension of pass-through that encompasses the most recent years. ; In this article, the author provides some updated estimates of the responsiveness of U.S. import prices to changes in the exchange rate in a sample of manufacturing industries over the period 1981 to 1999. Passthrough is generally incomplete, but there is a considerable degree of variation across different industries. The author also documents a decline in pass-through for the majority of examined industries in the most recent decade. While pass-through was 0.50 on average in the 1980s, it dropped to an average of about 0.25 in the 1990s. Thus, during the 1990s larger changes in the exchange rate were needed to move the dollar price of imported goods relative to the price of domestic goods. As with other studies, the author finds that it is difficult to relate the change in passthrough to macroeconomic outcomes such as the lower inflation rates achieved in many countries.

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Publisher Info
Article provided by Federal Reserve Bank of Boston in its journal New England Economic Review.

Volume (Year): (2002)
Issue (Month): Q 1 ()
Pages: 3 - 18
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Handle: RePEc:fip:fedbne:y:2002:i:q1:p:3-18

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Keywords: Foreign exchange ; Prices ; Imports;

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Froot, Kenneth A & Klemperer, Paul D, 1989. "Exchange Rate Pass-Through When Market Share Matters," American Economic Review, American Economic Association, vol. 79(4), pages 637-54, September. [Downloadable!] (restricted)
    Other versions:
  2. Robert W. Rich & Donald Rissmiller, 2000. "Understanding the recent behavior of U.S. inflation," Current Issues in Economics and Finance, Federal Reserve Bank of New York, issue Jul. [Downloadable!]
  3. Feenstra, Robert C., 1989. "Symmetric pass-through of tariffs and exchange rates under imperfect competition: An empirical test," Journal of International Economics, Elsevier, vol. 27(1-2), pages 25-45, August. [Downloadable!] (restricted)
    Other versions:
  4. Subramanian Rangan & Robert Z. Lawrence, 1999. "Search and Deliberation in International Exchange: Learning from Multinational Trade About Lags, Distance Effects, and Home Bias," NBER Working Papers 7012, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Jose Manuel Campa & Linda S. Goldberg, 2002. "Exchange rate pass-through into import prices: a macro or micro phenomenon?," Staff Reports 149, Federal Reserve Bank of New York. [Downloadable!]
    Other versions:
  6. Pinelopi Koujianou Goldberg & Michael M. Knetter, 1997. "Goods Prices and Exchange Rates: What Have We Learned?," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1243-1272, September. [Downloadable!] (restricted)
    Other versions:
  7. Jonathan McCarthy, 2000. "Pass-through of exchange rates and import prices to domestic inflation in some industrialized economies," Staff Reports 111, Federal Reserve Bank of New York. [Downloadable!]
    Other versions:
  8. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June. [Downloadable!] (restricted)
    Other versions:
  9. Joseph E. Gagnon & Jane Ihrig, 2001. "Monetary policy and exchange rate pass-through," International Finance Discussion Papers 704, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  10. Campa, José Manuel & Goldberg, Linda S, 2004. "Exchange Rate Pass-Through into Import Prices," CEPR Discussion Papers 4391, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  11. Taylor, John B., 2000. "Low inflation, pass-through, and the pricing power of firms," European Economic Review, Elsevier, vol. 44(7), pages 1389-1408, June. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Joseph E. Gagnon & Jane Ihrig, 2004. "Monetary policy and exchange rate pass-through

    This article is a U.S. Government work and is in the public domain in the U.S.A.

    ," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 9(4), pages 315-338. [Downloadable!]
  2. Patricia S. Pollard & Cletus C. Coughlin, 2004. "Size matters: asymmetric exchange rate pass-through at the industry level," Working Papers 2003-029, Federal Reserve Bank of St. Louis. [Downloadable!]
  3. Jorge Chami Batista & Nelson Isaac Abrahão Junior, 2005. "Aggregation Problems in Estimates of Armington Elasticities and Pass-Through Effects," Economia, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics], vol. 6(2), pages 329-355. [Downloadable!]
  4. Peter Rowland, 2004. "Exchange Rate Pass-Through To Domestic Prices: The Case Of Colombia," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE. [Downloadable!]
  5. Mario Marazzi & Nathan Sheets & Robert J. Vigfusson & Jon Faust & Joseph Gagnon & Jaime Marquez & Robert F. Martin & Trevor Reeve & John Rogers, 2005. "Exchange rate pass-through to U.S. import prices: some new evidence," International Finance Discussion Papers 833, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  6. Peter Rowland, . "Exchange Rate Pass-Throught to Domestic Prices: The Case of Colombia," Borradores de Economia 254, Banco de la Republica de Colombia. [Downloadable!]
  7. Ramón María-Dolores, 2008. "Exchange rate pass-through in new Member States and candidate countries of the EU," Banco de España Working Papers 0822, Banco de España. [Downloadable!]
  8. Reginaldo P. Nogueira Junior & Miguel Leon-Ledesma, 2008. "Exchange Rate Pass-Through Into Inflation: The Role of Asymmetries and NonLinearities," Studies in Economics 0801, Department of Economics, University of Kent. [Downloadable!]
  9. Charles P. Thomas & Jaime Marquez, 2009. "Measurement matters for modelling US import prices

    This article is a U.S. Government work and is in the public domain in the U.S.A.

    ," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 14(2), pages 120-138. [Downloadable!]
  10. Elke Hahn, 2007. "The impact exchange rate shocks on sectoral activity and prices in the euro area," Working Paper Series 796, European Central Bank. [Downloadable!]
  11. Tokhir Mirzoev, 2004. "A Dynamic Model of Endogenous Exchange Rate Pass-Through," International Finance 0409002, EconWPA. [Downloadable!]
  12. Jose Manuel Campa & Linda S. Goldberg, 2006. "Pass-through of exchange rates to consumption prices: what has changed and why," Staff Reports 261, Federal Reserve Bank of New York. [Downloadable!]
    Other versions:
  13. Linda Goldberg & Cedric Tille, 2006. "The internationalization of the dollar and trade balance adjustment," Staff Reports 255, Federal Reserve Bank of New York. [Downloadable!]
  14. Charles P. Thomas & Jaime Marquez, 2006. "Measurement matters for modeling U.S. import prices," International Finance Discussion Papers 883, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  15. Jane E. Ihrig & Mario Marazzi & Alexander D. Rothenberg, 2006. "Exchange-rate pass-through in the G-7 countries," International Finance Discussion Papers 851, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  16. Linda S. Goldberg & Cédric Tille, 2006. "The International Role of the Dollar and Trade Balance Adjustment," NBER Working Papers 12495, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  17. Emi Nakamura & Jón Steinsson, 2009. "Lost in Transit: Product Replacement Bias and Pricing to Market," NBER Working Papers 15359, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  18. Li-gang Liu & Andrew Tsang, 2008. "Exchange Rate Pass-Through to Domestic Inflation in Hong Kong," Working Papers 0802, Hong Kong Monetary Authority. [Downloadable!]
  19. Robert J. Vigfusson & Nathan Sheets & Joseph Gagnon, 2007. "Exchange rate pass-through to export prices: assessing some cross-country evidence," International Finance Discussion Papers 902, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  20. Christopher Gust & Sylvain Leduc & Robert J. Vigfusson, 2006. "Trade integration, competition, and the decline in exchange-rate pass-through," International Finance Discussion Papers 864, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  21. Takatoshi Ito & Kiyotaka Sato, 2006. "Exchange Rate Changes and Inflation in Post-Crisis Asian Economies: VAR Analysis of the Exchange Rate Pass-Through," NBER Working Papers 12395, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  22. Peter Rowland, 2003. "Exchange Rate Pass-Through To Domestic Prices: The Case Of Colombia," BORRADORES DE ECONOMIA 002683, BANCO DE LA REPÚBLICA. [Downloadable!]
  23. Patricia S. Pollard & Cletus C. Coughlin, 2003. "Pass-through estimates and the choice of an exchange rate index," Working Papers 2003-004, Federal Reserve Bank of St. Louis. [Downloadable!]
    Other versions:
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