Exchange rate pass-through to import prices in the Euro-area: A multi-currency investigation

Using a new database of actual import price data rather than unit value indices, we analyze the impact of currency-invoicing decision of exporting firms on the extent of exchange rate pass-through (ERPT) for several Euro-area countries during the period of June 2005 to July 2013. Mainly, we use a multi-currency approach to distinguish between invoicing strategies across the most important currencies for Euro-area imports and make a distinction between bilateral and multilateral (or effective) ERPT. First, we show that the effective ERPT is primarily driven by the US Dollar bilateral ERPT. Second, in contrast to several papers in the empirical literature which argue that ERPT is low and incomplete, we find that short run effective ERPT is incomplete, while long run effective ERPT is complete. Third, estimating time-varying ERPT, we uncover that the 2008 global crisis triggered a temporary increase in the effective ERPT and find no evidence of declining value of the ERPT.