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Energy Prices, Pass-Through, and Incidence in U.S. Manufacturing

Listed author(s):
  • Sharat Ganapati
  • Joseph S. Shapiro
  • Reed Walker

This paper studies how increases in energy input costs for production are split between consumers and producers via changes in product prices (i.e., pass-through). We show that in markets characterized by imperfect competition, marginal cost pass-through, a demand elasticity, and a price-cost markup are suffcient to characterize the relative change in welfare between producers and consumers due to a change in input costs. We and that increases in energy prices lead to higher plant-level marginal costs and output prices but lower markups. This suggests that marginal cost pass-through is incomplete, with estimates centered around 0.7. Our confidence intervals reject both zero pass-through and complete pass-through. We and heterogeneous incidence of changes in input prices across industries, with consumers bearing a smaller share of the burden than standards methods suggest.

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File URL: https://www2.census.gov/ces/wp/2016/CES-WP-16-27.pdf
File Function: First version, 2016
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Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 16-27.

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Length: 47 pages
Date of creation: Jan 2016
Handle: RePEc:cen:wpaper:16-27
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