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Industry heterogeneity and exchange rate pass-through

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  • Casas, Camila

Abstract

In the presence of price rigidities, nominal exchange rate fluctuations can have real effects on the economy. External shocks may have differentiated effects across economic sectors depending on firms’ marginal cost structure and features of the demand they face, such as strategic complementarities. I analyze the relationship between the exchange rate pass-through into export and import prices and volumes and the use of imported inputs in production, an important determinant of marginal cost. Using microdata from Colombia, I show that manufacturing industries differ significantly in their use of imported inputs and in the estimated exchange rate pass-through. I find a clear correlation between the use of imported inputs and the response of prices to changes in exchange rates. That is, the exchange rate pass-through into prices tends to be larger for industries in which firms use a larger share of imported inputs. The link is stronger in the case of exports, but the effect on the pass-through into import prices is also positive. In contrast, I do not find a clear correlation between the use of imported inputs and the response of traded quantities to changes in exchange rates.

Suggested Citation

  • Casas, Camila, 2020. "Industry heterogeneity and exchange rate pass-through," Journal of International Money and Finance, Elsevier, vol. 106(C).
  • Handle: RePEc:eee:jimfin:v:106:y:2020:i:c:s0261560620301388
    DOI: 10.1016/j.jimonfin.2020.102182
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    3. Chen, Ting & Luo, Wenjie & Xiang, Xunyong, 2022. "Financial constraints, exchange rate changes and export price: Evidence from Chinese exporters," Finance Research Letters, Elsevier, vol. 48(C).
    4. David C. López-Valenzuela & Enrique Montes-Uribe & Héctor M. Zárate-Solano & Alvaro Carmona-Duarte, 2019. "Determinantes y evolución entre precios y cantidades de las exportaciones industriales de Colombia: un estudio a partir de un modelo de Panel-VAR," Borradores de Economia 1075, Banco de la Republica de Colombia.
    5. Ferrari Minesso, Massimo & Gräb, Johannes, 2022. "E pluribus plures: shock dependency of the USD pass-through to real and financial variables," Working Paper Series 2684, European Central Bank.
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    7. Md Deluair Hossen, 2023. "Exchange Rate Pass-Through and Data Frequency: Firm-Level Evidence from Bangladesh," Papers 2303.04101, arXiv.org.
    8. Zou, Zongsen & Zhang, Yu & Wang, Meng & Wang, Xiuling, 2022. "Do export quality and destination income matter for exchange rate pass-through? Evidence from China," Economic Modelling, Elsevier, vol. 117(C).
    9. Yasin Kürşat Önder & Sara Restrepo-Tamayo & Maria Alejandra Ruiz-Sanchez & Mauricio Villamizar-Villegas, 2024. "Government Borrowing and Crowding Out," American Economic Journal: Macroeconomics, American Economic Association, vol. 16(1), pages 286-321, January.
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    11. Juan Esteban Carranza & Alejandra González-Ramírez & Alex Perez & Juan Sebastián Vélez-Velásquez, 2024. "Exchange rate pass-through in the Colombian car market," International Economics and Economic Policy, Springer, vol. 21(1), pages 151-179, February.
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    15. Juan Esteban Carranza & Camila Casas & Alejandra Ximena González-Ramírez, 2020. "The Colombian peso depreciation of 2014-2015 and the adjustment of trade in the manufacturing sector," Borradores de Economia 1125, Banco de la Republica de Colombia.
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    More about this item

    Keywords

    Exchange rate pass-through; Export and import prices; Export and import volumes; Intermediate inputs;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • F2 - International Economics - - International Factor Movements and International Business
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • L6 - Industrial Organization - - Industry Studies: Manufacturing

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