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Exchange rate pass-through into import prices: A macro or micro phenomenon?

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Author Info
Campa, Jose M. () (IESE Business School)
Goldberg, Linda S. () (Federal Reserve Bank of New York)

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Abstract

Exchange rate regime optimality,as well as monetary policy effectiveness,depends on the tightness of the link between exchange rate movements and import prices.Recent debates hinge on whether producer-currency pricing (PCP)or local-currency pricing (LCP) of imports is more prevalent,and on whether exchange rate pass-through rates are endogenous to a country 's macroeconomic conditions.We provide cross-country and time series evidence on both of these issues for the imports of twenty-five OECD countries. Across the OECD,and especially within manufacturing industries,there is compelling evidence of partial pass-through in the short-run ­ rejecting both PCP and LCP. Over the long run,PCP is more prevalent for many types of imported goods.Higher inflation and exchange rate volatility are weakly associated with higher pass-through of exchange rates into import prices. However, for OECD countries,the most important determinants of changes in pass-through over time are microeconomic and relate to the industry composition of a country 's import bundle.

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Paper provided by IESE Business School in its series IESE Research Papers with number D/475.

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Length: 29 pages
Date of creation: 15 Oct 2002
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Handle: RePEc:ebg:iesewp:d-0475

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Keywords: Producer currency pricing imports monetary policy

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Find related papers by JEL classification:
F30 - International Economics - - International Finance - - - General
F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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References listed on IDEAS
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