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International Trade Price Stickiness and Exchange Rate Pass-through in Micro Data: A Case Study on US-China Trade

Author

Listed:
  • Mina Kim,

    () (U.S. Bureau of Labor Statistics)

  • Deokwoo Nam,

    () (City University of Hong Kong)

  • Jian Wang

    () (Federal Reserve Bank of Dallas)

  • Jason Wu,

    () (Federal Reserve Board)

Abstract

The interaction between the exchange rate regime, trade firms' price-setting behavior, and exchange rate pass-through (ERPT) is an important topic in international economics. This paper studies this using a goods-level dataset of US-China trade prices collected by the US Bureau of Labor Statistics. We document that the duration of US-China trade prices has declined almost 30% since China abandoned its hard peg to the US dollar in June 2005. A benchmark menu cost model that is calibrated to the data can replicate the documented decrease in price stickiness. We also estimate ERPT of RMB appreciation into US import prices between 2005 and 2008. Goods-level data allows us to estimate that the lifelong ERPT is close to one for goods that have at least one price change, but less than one-half when all goods are included. This nding can be attributed to the fact that around 40% of the goods in never experience a price change, and supports the hypothesis that price changes that take the form of product replacements may bias ERPT estimates downwards.

Suggested Citation

  • Mina Kim, & Deokwoo Nam, & Jian Wang & Jason Wu,, 2013. "International Trade Price Stickiness and Exchange Rate Pass-through in Micro Data: A Case Study on US-China Trade," Working Papers 467, U.S. Bureau of Labor Statistics.
  • Handle: RePEc:bls:wpaper:ec130080
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Mina Kim, 2016. "Interactions Between Exchange Rates and Import Prices: What Have We Learned?," Annual Report, Globalization and Monetary Policy Institute, Federal Reserve Bank of Dallas, pages 26-31.
    2. Raphael A. Auer, 2015. "Exchange Rate Pass‐Through, Domestic Competition, and Inflation: Evidence from the 2005–08 Revaluation of the Renminbi," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(8), pages 1617-1650, December.
    3. Jihyun Eum, 2019. "Impact of Chinese Renminbi on Korean Exports: Does Quality Matter?," Working Papers 2019-24, Economic Research Institute, Bank of Korea.
    4. Mark A. Wynne, 2012. "Five Years of Research on Globalization and Monetary Policy: What Have We Learned?," Annual Report, Globalization and Monetary Policy Institute, Federal Reserve Bank of Dallas, pages 2-17.
    5. Jian Wang, 2014. "Understanding Trade, Exchange Rates and International Capital Flows," Annual Report, Globalization and Monetary Policy Institute, Federal Reserve Bank of Dallas, pages 10-15.
    6. Li, Hongbin & Ma, Hong & Xu, Yuan, 2015. "How do exchange rate movements affect Chinese exports? — A firm-level investigation," Journal of International Economics, Elsevier, vol. 97(1), pages 148-161.

    More about this item

    Keywords

    Price Stickiness; Menu cost model; International trade prices; RMB; Exchange rate pass- through;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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