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What can Big Data tell us about the passthrough of big exchange rate changes?

Author

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  • Lewis, John

    (Bank of England)

Abstract

Using a large data set of import volumes and values for goods imports from around 50 trading partners, and 3,000 goods type, this paper finds that the micro level, passthrough is non-linear in the exchange rate. The passthrough of larger bilateral exchange rate movements (ie more than 5%) is around four times larger than that of smaller changes. However, regressions on aggregate data indicate that passthrough at the macro level is close to full. The resolution to this apparent puzzle lies in the fact that larger bilateral movements account for the vast majority of variation in the exchange rate index, and hence the non-linearity at the micro level largely disappears at the macro level.

Suggested Citation

  • Lewis, John, 2016. "What can Big Data tell us about the passthrough of big exchange rate changes?," Bank of England working papers 579, Bank of England.
    • Handle: RePEc:boe:boeewp:0579
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    References listed on IDEAS

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    1. Caballero, Ricardo J. & Engel, Eduardo M.R.A., 2007. "Price stickiness in Ss models: New interpretations of old results," Journal of Monetary Economics, Elsevier, vol. 54(Supplemen), pages 100-121, September.
    2. Auer, Raphael A. & Schoenle, Raphael S., 2016. "Market structure and exchange rate pass-through," Journal of International Economics, Elsevier, vol. 98(C), pages 60-77.
    3. Matthieu Bussiere, 2013. "Exchange Rate Pass-through to Trade Prices: The Role of Nonlinearities and Asymmetries," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 75(5), pages 731-758, October.
    4. Cletus C. Coughlin & Patricia S. Pollard, 2004. "Size matters: asymmetric exchange rate pass-through at the industry level," Working Papers 2003-029, Federal Reserve Bank of St. Louis.
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    Cited by:

    1. Forbes, Kristin & Hjortsoe, Ida & Nenova, Tsvetelina, 2018. "The shocks matter: Improving our estimates of exchange rate pass-through," Journal of International Economics, Elsevier, vol. 114(C), pages 255-275.
    2. Hjortsoe, Ida & Lewis, John, 2020. "Non-linearities, asymmetries and dollar currency pricing in exchange rate pass-through: evidence from the sectoral level," Bank of England working papers 868, Bank of England.
    3. Kapur, Muneesh, 2018. "Macroeconomic Policies and Transmission Dynamics in India," MPRA Paper 88566, University Library of Munich, Germany.
    4. Christian Gillitzer & Angus Moore, 2016. "Trade Invoicing Currency and First-stage Exchange Rate Pass-through," RBA Research Discussion Papers rdp2016-05, Reserve Bank of Australia.

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    More about this item

    Keywords

    Exchange rate passthrough; Big Data; non-linearity;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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