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Explaining Import Price Inflation: A Recent History of Second Stage Pass-through

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Author Info
Jacqueline Dwyer (Reserve Bank of Australia)
Ricky Lam (Reserve Bank of Australia)
Abstract

This paper examines the pass-through of exchange rate changes to the domestic prices of imported consumer goods. Two distinct stages can be identified in the adjustment process. First, changes in the exchange rate are passed on to changes in the prices of imports over the docks. Second, these prices are, in turn, passed on to final retail import prices. It is found that pass-through in the first stage is rapid and complete. In the second stage, pass-through is also complete. It is, however, rather slow as importers appear able to vary their mark-ups substantially and for considerable periods of time. Moreover, the sizeable domestic costs involved in the distribution and sale of imports imply that a proportional change in the price of imports over the docks does not lead to the same proportional change in the retail import price, but rather one that is equal to the share of the imported item in the total bundle of costs faced by importers.

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Paper provided by Reserve Bank of Australia in its series RBA Research Discussion Papers with number rdp9407.

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Date of creation: Dec 1994
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Handle: RePEc:rba:rbardp:rdp9407

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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. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March. [Downloadable!] (restricted)
  2. Dixit, Avinash K, 1989. "Entry and Exit Decisions under Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 620-38, June. [Downloadable!] (restricted)
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  3. Stiglitz, Joseph E, 1984. "Price Rigidities and Market Structure," American Economic Review, American Economic Association, vol. 74(2), pages 350-55, May. [Downloadable!] (restricted)
  4. Phillips, Peter C B & Ouliaris, S, 1990. "Asymptotic Properties of Residual Based Tests for Cointegration," Econometrica, Econometric Society, vol. 58(1), pages 165-93, January. [Downloadable!] (restricted)
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  5. Tony Richards & Glenn Stevens, . "Estimating the Inflationary Effects of Depreciation," RBA Research Discussion Papers rdp8713, Reserve Bank of Australia.
  6. Benabou, Roland, 1992. "Inflation and markups : Theories and evidence from the retail trade sector," European Economic Review, Elsevier, vol. 36(2-3), pages 566-574, April. [Downloadable!] (restricted)
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  7. Neil R. Ericsson, 1991. "Cointegration, exogeneity, and policy analysis: an overview," International Finance Discussion Papers 415, Board of Governors of the Federal Reserve System (U.S.).
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  8. Kremers, Jeroen J M & Ericsson, Neil R & Dolado, Juan J, 1992. "The Power of Cointegration Tests," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 325-48, August.
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  9. Bewley, R. A., 1979. "The direct estimation of the equilibrium response in a linear dynamic model," Economics Letters, Elsevier, vol. 3(4), pages 357-361. [Downloadable!] (restricted)
  10. Menon, Jayant, 1995. " Exchange Rate Pass-Through," Journal of Economic Surveys, Blackwell Publishing, vol. 9(2), pages 197-231, June.
  11. 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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  1. Guneratne Banda Wickremasinghe & Param Silvapulle, 2004. "Exchange Rate Pass-Through to Manufactured Import Prices: The Case of Japan," International Trade 0406006, EconWPA. [Downloadable!]
  2. David Gruen & Jacqueline Dwyer, 1995. "Are Terms of Trade Rises Inflationary?," RBA Research Discussion Papers rdp9508, Reserve Bank of Australia. [Downloadable!]
  3. Nargis Bharucha & Christopher Kent, 1998. "Inflation Targeting in a Small Open Economy," RBA Research Discussion Papers rdp9807, Reserve Bank of Australia. [Downloadable!]
  4. Gordon de Brouwer & Neil R Ericsson, 1995. "Modelling Inflation in Australia," RBA Research Discussion Papers rdp9510, Reserve Bank of Australia. [Downloadable!]
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  5. James O'Regan & Jenny Wilkinson, 1997. "Internationalisation and Pricing Behaviour: Some Evidence for Australia," RBA Research Discussion Papers rdp9707, Reserve Bank of Australia. [Downloadable!]
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