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On the seemingly incompleteness of exchange rate pass-through to import prices: Do globalization and/or regional trade matter?

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  • Antonia Lopez-Villavicencio
  • Valérie Mignon

Abstract

This paper assesses the impact of globalization on exchange rate pass-through (ERPT) into import prices in three core eurozone countries. To this end, we consider various indicators of globalization and rely on both aggregated (i.e., country level) and disaggregated (i.e., good level) data. Using quarterly data since 1992, we do not find compelling evidence that global factors cause a structural change in the degree of exchange rate pass-through. Indeed, increased trade openness or lower trade tariffs push up ERPT in some sectors, though results are quite sparse. However, regionalization, defined as a higher proportion of intra-EU imports' share in total imports, reduces the pass-through in a more generalized way. Most importantly, we show that ERPT incompleteness generally observed in the literature is in appearance only and not at play when intra-EU trade is controlled for. Overall, our findings show that ERPT is complete and significant in numerous sectors, meaning that exchange rate changes still exert important pressure on domestic prices.

Suggested Citation

  • Antonia Lopez-Villavicencio & Valérie Mignon, 2017. "On the seemingly incompleteness of exchange rate pass-through to import prices: Do globalization and/or regional trade matter?," Working Papers 2017-08, CEPII research center.
  • Handle: RePEc:cii:cepidt:2017-08
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    References listed on IDEAS

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    More about this item

    Keywords

    Exchange rate pass-through; Import prices; Globalization; Eurozone;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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