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Exchange rate pass through to import prices in the euro area

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  • José M. Campa

    ()
    (IESE Business School)

  • Linda S. Goldberg

    ()
    (Federal Reserve Bank of New York)

  • José M. González-Mínguez

    ()
    (Banco de España)

Abstract

This paper presents an empirical analysis of transmission rates from exchange rate movements to import prices, across countries and product categories, in the euro area over the last fifteen years. Our results show that the transmission of exchange rate changes to import prices in the short run is high, although incomplete, and that it differs across industries and countries; in the long run, exchange rate pass through is higher and close to one. We find no strong statistical evidence that the introduction of the euro caused a structural change in this transmission. Although estimated point elasticities seem to have declined since the introduction of the euro, we find little evidence of a structural break in the transmission of exchange rate movements except in the case of some manufacturing industries. And since the euro was introduced, industries producing differentiated goods have been more likely to experience reduced rates of exchange rate pass through to import prices. Exchange rate changes continue to lead to large changes in import prices across euro area countries.

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File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/05/Fic/dt0538e.pdf
File Function: First version, November 2005
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Bibliographic Info

Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 0538.

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Length: 36 pages
Date of creation: Nov 2005
Date of revision:
Handle: RePEc:bde:wpaper:0538

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Keywords: currency; invoicing; pass-through; exchange rate; producer currency pricing; local currency pricing;

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