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Passthrough Estimates and the Choice of an Exchange Rate Index

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  • Patricia S. Pollard
  • Cletus C. Coughlin

Abstract

We examine exchange rate passthrough into US import prices for 29 manufacturing industries using eight exchange rate indexes. These indexes vary by the number of 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 passthrough is generally incomplete but varies across industries. Moreover, passthrough 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. Copyright © 2006 The Authors; Journal compilation © 2006 Blackwell Publishing Ltd.

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  • Patricia S. Pollard & Cletus C. Coughlin, 2006. "Passthrough Estimates and the Choice of an Exchange Rate Index," Review of International Economics, Wiley Blackwell, vol. 14(4), pages 535-553, September.
  • Handle: RePEc:bla:reviec:v:14:y:2006:i:4:p:535-553
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    References listed on IDEAS

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    1. Corsetti, Giancarlo & Dedola, Luca, 2005. "A macroeconomic model of international price discrimination," Journal of International Economics, Elsevier, vol. 67(1), pages 129-155, September.
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    15. Gron, Anne & Swenson, Deborah L, 1996. "Incomplete Exchange-Rate Pass-Through and Imperfect Competition: The Effect of Local Production," American Economic Review, American Economic Association, vol. 86(2), pages 71-76, May.
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    1. repec:bla:reviec:v:25:y:2017:i:4:p:711-732 is not listed on IDEAS
    2. Poornima Varma & Akash Issar, 2016. "Pricing to market behaviour of India's high value agri-food exporters: an empirical analysis of major destination markets," Agricultural Economics, International Association of Agricultural Economists, vol. 47(1), pages 129-137, January.
    3. Janine Aron & Ronald Macdonald & John Muellbauer, 2014. "Exchange Rate Pass-Through in Developing and Emerging Markets: A Survey of Conceptual, Methodological and Policy Issues, and Selected Empirical Findings," Journal of Development Studies, Taylor & Francis Journals, vol. 50(1), pages 101-143, January.
    4. repec:eee:riibaf:v:41:y:2017:i:c:p:247-259 is not listed on IDEAS
    5. Julia Ferreira Torracca & David Kupfe, 2014. "A Evolução Da Taxa De Câmbio Efetiva Real Setorial E A Mudança Estrutural No Padrão De Comércio Da Indústria Brasileira," Anais do XLI Encontro Nacional de Economia [Proceedings of the 41th Brazilian Economics Meeting] 114, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
    6. Guillaume Gaulier & Amina Lahrèche-Révil & Isabelle Méjean, 2008. "Exchange-rate pass-through at the product level," Canadian Journal of Economics, Canadian Economics Association, vol. 41(2), pages 425-449, May.
    7. Pradyut Kumar Pyne & Saikat Sinha Roy, 2009. "Exchange Rate Pass-Through in India an Exploration with Sectoral Import Prices," DEGIT Conference Papers c014_038, DEGIT, Dynamics, Economic Growth, and International Trade.
    8. 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.

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