Local Currency Pricing and Pass-Through: An Empirical and Theoretical Analysis
This paper explores the reasons behind a low elasticity of imported goods to the nominal exchange rates, analyzing empirically the law of one price and the degree of pass-through. The results show that, in the medium and long term, the degree of pass-through is low and the deviations from the law of one price on consumer prices are wide and persistent. These deviations are due to both local currency pricing strategies and the behavior of prices in the distribution services. Given these results, we propose a new decomposition of the consumer price index that takes into account multiple factors for the analysis of the degrees of pass-through.
Volume (Year): 93 (2003)
Issue (Month): 6 (November-December)
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