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The impact exchange rate shocks on sectoral activity and prices in the euro area

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Author Info
Elke Hahn () (European Central Bank, Kaiserstraße 29, 60311 Frankfurt, Germany.)
Abstract

This paper investigates the impact of exchange rate shocks on sectoral activity and prices in the euro area. Using a VAR framework it provides evidence on the magnitude and speed of the impact of exchange rate shocks on activity in all main euro area sectors and on activity and producer prices in a large set of sub-sectors of industry (excluding construction). Substantial heterogeneity in the impact of exchange rate shocks across sectors is identified as regards both activity and prices. According to our results, among the main euro area sectors an exchange rate shock has the strongest impact on value added in industry (excl. construction) and trade and transportation services. Within industry (excl. construction), among its main sub-sectors all of the impact on production comes via manufacturing, while among the main industrial groupings (MIGs), capital and intermediate goods production respond most strongly. As regards the impact on prices, among the sub-sectors of industry (excl. construction), the impact is largest on producer prices in electricity, gas and water supply, and in line with this producer prices in MIG energy are most sensitive to an exchange rate shock. JEL Classification: C32, E31.

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Paper provided by European Central Bank in its series Working Paper Series with number 796.

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Length: 47 pages
Date of creation: Aug 2007
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Handle: RePEc:ecb:ecbwps:20070796

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Keywords: Exchange Rate Pass-Through Sectoral Activity and Prices Euro area.

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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. 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)
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  2. 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!]
  3. Menon, Jayant, 1995. " Exchange Rate Pass-Through," Journal of Economic Surveys, Blackwell Publishing, vol. 9(2), pages 197-231, June.
  4. Elke Hahn, 2003. "Pass-through of external shocks to euro area inflation," Working Paper Series 243, European Central Bank. [Downloadable!]
  5. Robert Anderton, 2003. "Extra-euro area manufacturing import prices and exchange rate pass-through," Working Paper Series 219, European Central Bank. [Downloadable!]
  6. 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, issue Q 1, pages 3 - 18. [Downloadable!]
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