Pass-through estimates and the choice of an exchange rate index

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Pass-through estimates and the choice of an exchange rate index

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Patricia S. Pollard
Cletus C. Coughlin

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Abstract

We examine exchange rate pass-through into U.S. import prices in 29 manufacturing industries using eight exchange rate indexes. These indexes vary by the number currencies included; whether the weight on each currency is based on total trade with the United States or solely imports; and, whether the weights vary by industry. Our results indicate that pass-through is generally incomplete but varies across industries. Moreover, pass-through is sensitive to the exchange rate index. Using bootstrapped J tests we show that major currency indexes perform better than their broad currency counterparts. When using a major currency index, industry-specific exchange rate indexes are preferred to aggregate indexes.

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Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2003-004.

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Date of creation: 2003
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Handle: RePEc:fip:fedlwp:2003-004

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NEP-ALL-2003-06-16 (All new papers)
NEP-IFN-2003-07-21 (International Finance)

References listed on IDEAS
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Other versions:
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Linda S. Goldberg, 2004. "Industry-specific exchange rates for the United States," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 1-16. [Downloadable!]

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