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Extra-euro area manufacturing import prices and exchange rate pass-through

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Author Info
Robert Anderton () (European Central Bank, Postfach 160319, 60311 Frankfurt am Main, Germany.)
Abstract

This paper uses a model of import prices whereby exporters to the euro area set export prices partly as a mark-up on their production costs (i.e., the degree of exchange rate pass-through) and partly in line with euro area producer prices (i.e., pricing-to-market). Using both time series and panel estimation techniques, the econometric results suggest that the pass through of changes in the effective exchange rate of the euro to the price of extra-euro area imports of manufacturers is around 50% - 70%, while pricing-to-market has an estimated weight of between 50% - 30%. We also find some evidence of differences across import suppliers, with EU member states who are not part of the euro area assigning a relatively larger weight to pricing-to-market, while euro area imports from the United States seem to be characterised by a relatively higher degree of exchange rate pass-through. JEL Classification: D40; E30; F10; F31.

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Paper provided by European Central Bank in its series Working Paper Series with number 219.

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Length: 32 pages
Date of creation: Mar 2003
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Handle: RePEc:ecb:ecbwps:20030219

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Keywords: Extra-euro area import prices exchange rate pass through pricing-to-market.

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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. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Blackwell Publishing, vol. 58(2), pages 277-97, April. [Downloadable!] (restricted)
  2. Athukorala, Premachandra & Menon, Jayant, 1994. "Pricing to Market Behaviour and Exchange Rate Pass-Through in Japanese Exports," Economic Journal, Royal Economic Society, vol. 104(423), pages 271-81, March. [Downloadable!] (restricted)
  3. Richard Baldwin, 1988. "Hysteresis In Import Prices: The Beachhead Effect," NBER Working Papers 2545, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Dixit, Avinash K, 1989. "Hysteresis, Import Penetration, and Exchange Rate Pass-Through," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 205-28, May. [Downloadable!] (restricted)
  5. Doornik, Jurgen A & Hendry, David F & Nielsen, Bent, 1998. " Inference in Cointegrating Models: UK M1 Revisited," Journal of Economic Surveys, Blackwell Publishing, vol. 12(5), pages 533-72, December. [Downloadable!] (restricted)
  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)
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  7. Alexius, Annika & Vredin, Anders, 1999. " Pricing-to-Market in Swedish Exports," Scandinavian Journal of Economics, Blackwell Publishing, vol. 101(2), pages 223-39, June. [Downloadable!] (restricted)
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  8. Luca Buldorini & Stelios Makrydakis & Christian Thimann, 2002. "The effective exchange rates of the euro," Occasional Paper Series 02, European Central Bank. [Downloadable!]
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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. Campa, José Manuel & Goldberg, Linda S & González Mìnguez, Jose Manuel, 2005. "Exchange Rate Pass-Through to Import Prices in the Euro Area," CEPR Discussion Papers 5347, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. Corsetti, Giancarlo & Dedola, Luca & Leduc, Sylvain, 2005. "DSGE Models of High Exchange-Rate Volatility and Low Pass-Through," CEPR Discussion Papers 5377, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  3. Bas van Aarle & Harry Garretsen & Florence Huart, 2003. "Transatlantic Monetary and Fiscal Policy Interaction," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  4. Linda S. Goldberg & Cedric Tille, 2005. "Vehicle Currency Use in International Trade," NBER Working Papers 11127, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Alistair Dieppe & Thomas Warmedinger, 2007. "Modelling intra- and extra-area trade substitution and exchange rate pass-through in the euro area," Working Paper Series 760, European Central Bank. [Downloadable!]
  6. Sophocles N. Brissimis & Theodora S. Kosma, 2005. "Market power, innovative activity and exchange rate pass-through in the euro area," Working Paper Series 531, European Central Bank. [Downloadable!]
  7. Moons C. & Garretsen H. & Van Aarle B. & Fornero J., 2007. "Monetary policy in the New-Keynesian model: An application to the Euro-Area," Working Papers 2007014, University of Antwerp, Faculty of Applied Economics. [Downloadable!]
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  8. Hamid Faruqee, 2004. "Exchange Rate Pass-Through in the Euro Area: The Role of Asymmetric Pricing Behavior," IMF Working Papers 04/14, International Monetary Fund. [Downloadable!]
  9. 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!]
  10. Hamid Faruqee, 2006. "Exchange Rate Pass-Through in the Euro Area," IMF Staff Papers, Palgrave Macmillan Journals, vol. 53(1), pages 4. [Downloadable!] (restricted)
  11. Elke Hahn, 2003. "Pass-through of external shocks to euro area inflation," Working Paper Series 243, European Central Bank. [Downloadable!]
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