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Exchange Rate Pass-Through in a Small Open Economy: Panel Evidence from Hong Kong

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David C. Parsley (Vanderbilt University)

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Abstract

This paper presents estimates of exchange rate pass-through derived from a panel of very disaggregated import unit-values to Hong Kong. The estimation approach builds on that utilized by Knetter (1989, 1993) to study export pricing and pricing to market. The three-dimensional data set examined comprises Hong Kong's top eight floating exchange rate trading partners, and twenty-one of the top five-digit SITC imports since 1992. Pass-through estimates for Hong Kong imply relatively faster import price adjustment than is typically found for larger, less open economies. These estimates are robust to a number of sensitivity tests. Finally these results confirm, from a different perspective, findings by Parsley (2001) that deviations from the law of one price play a relatively smaller role in real exchange rate movements for Hong Kong than for other East Asian countries.

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Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 102001.

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Length: 15 pages
Date of creation: Oct 2001
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Handle: RePEc:hkm:wpaper:102001

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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. David Parsley, 2002. "Accounting for Real Exchange Rate Changes in East Asia," International Finance 0211003, EconWPA. [Downloadable!]
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  2. Michael Bleaney, 1997. "Invoicing-Currency Effects in the Pricing of Japanese Exports of Manufactures," Canadian Journal of Economics, Canadian Economics Association, vol. 30(4), pages 968-74, November.
  3. Froot, Kenneth A & Klemperer, Paul D, 1989. "Exchange Rate Pass-Through When Market Share Matters," American Economic Review, American Economic Association, vol. 79(4), pages 637-54, September. [Downloadable!] (restricted)
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  4. Shinji Takagi & Yushi Yoshida, 1999. "Exchange Rate Movements and Tradable Goods Prices in East Asia - An Analysis Based on Japanese Customs Data, 1988-98," IMF Working Papers 99/31, International Monetary Fund.
  5. 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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  6. Marston, Richard C., 1990. "Pricing to market in Japanese manufacturing," Journal of International Economics, Elsevier, vol. 29(3-4), pages 217-236, November. [Downloadable!] (restricted)
  7. Irving Kravis & Robert E. Lipsey, 1974. "International Trade Prices and Price Proxies," NBER Chapters, in: The Role Of The Computer In Economic And Social Research, pages 253-268 National Bureau of Economic Research, Inc. [Downloadable!]
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  8. Taylor, John B., 2000. "Low inflation, pass-through, and the pricing power of firms," European Economic Review, Elsevier, vol. 44(7), pages 1389-1408, June. [Downloadable!] (restricted)
  9. Catherine L. Mann, 1986. "Prices, profit margins, and exchange rates," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jun, pages 366-379.
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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. Mehrotra, Aaron, 2005. "Exchange and interest rate channels during a deflationary era - Evidence from Japan, Hong Kong and China," BOFIT Discussion Papers 17/2005, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
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