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Exchange rate pass-through to import prices in the Euro-area: a multicurrency investigation


  • Olivier de Bandt
  • Tovonony Razafindrabe


Using a new database of actual import price data, and not unit value indices, for several euro area countries during the period between June 2005 and April 2011, we provide new results on the Exchange Rate Pass Through (ERPT). First, we use a multi-currency approach to distinguish between invoicing strategies across the most important currencies for euro area imports and show that the effective ERPT is primarily driven by the US Dollar ERPT. The firms which invoice in US Dollar (and in Chinese Yuan) are more concerned with demand conditions, while those which invoice in British Pound are more concerned with profit margins. Second, in contrast to several papers in the empirical literature that argue that ERPT is incomplete and its value is declining, we find that short run effective ERPT is incomplete, while long run effective ERPT is complete for a large number of products. Third, we uncover significant heterogeneity across products and countries: ERPT in US Dollar and British Pound appears higher than average for raw materials (e.g. petroleum products) and lower for transformed manufacturing products (chemical, pharmaceutical products and motor vehicles), and ERPT is higher in Spain than in the other euro area countries considered. Fourth, the 2008 global crisis triggered a temporary increase in the effective ERPT.

Suggested Citation

  • Olivier de Bandt & Tovonony Razafindrabe, 2012. "Exchange rate pass-through to import prices in the Euro-area: a multicurrency investigation," EconomiX Working Papers 2012-32, University of Paris Nanterre, EconomiX.
  • Handle: RePEc:drm:wpaper:2012-32

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    References listed on IDEAS

    1. Jeannine Bailliu & Eiji Fujii, 2004. "Exchange Rate Pass-Through and the Inflation Environment in Industrialized Countries: An Empirical Investigation," Staff Working Papers 04-21, Bank of Canada.
    2. Giovannini, Alberto, 1988. "Exchange rates and traded goods prices," Journal of International Economics, Elsevier, vol. 24(1-2), pages 45-68, February.
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    4. Devereux, Michael B. & Engel, Charles & Storgaard, Peter E., 2004. "Endogenous exchange rate pass-through when nominal prices are set in advance," Journal of International Economics, Elsevier, vol. 63(2), pages 263-291, July.
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    10. Friberg, Richard, 1998. "In which currency should exporters set their prices?," Journal of International Economics, Elsevier, vol. 45(1), pages 59-76, June.
    11. Charles Engel, 2006. "Equivalence Results for Optimal Pass-Through, Optimal Indexing to Exchange Rates, and Optimal Choice of Currency for Export Pricing," Journal of the European Economic Association, MIT Press, vol. 4(6), pages 1249-1260, December.
    12. 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.
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    18. Tokhir Mirzoev, 2004. "A Dynamic Model of Endogenous Exchange Rate Pass-Through," International Finance 0409002, EconWPA.
    19. Grassman, Sven, 1973. "A fundamental symmetry in international payment patterns," Journal of International Economics, Elsevier, vol. 3(2), pages 105-116, May.
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    Cited by:

    1. repec:ipg:wpaper:2014-083 is not listed on IDEAS
    2. Razafindrabe, Tovonony M., 2016. "A multi-country DSGE model with incomplete exchange rate pass-through: An application for the Euro-area," Economic Modelling, Elsevier, vol. 52(PA), pages 78-100.
    3. López-Villavicencio, Antonia & Mignon, Valérie, 2017. "Exchange rate pass-through in emerging countries: Do the inflation environment, monetary policy regime and central bank behavior matter?," Journal of International Money and Finance, Elsevier, vol. 79(C), pages 20-38.
    4. Tovonony Razafindrabe, 2014. "A multi-country DSGE model with incomplete Exchange Rate Pass-through: application for the Euro area," EconomiX Working Papers 2014-6, University of Paris Nanterre, EconomiX.
    5. Wong Hock Tsen, 2016. "Exchange rate volatilities and disaggregated bilateral exports of Malaysia to the United States: empirical evidence," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 6(2), pages 289-314, August.
    6. El-Shagi, Makram & Zhang, Lin, 2016. "Macroeconomic trade effects of vehicle currencies: Evidence from 19th century China," IWH Discussion Papers 23/2016, Halle Institute for Economic Research (IWH).
    7. repec:spr:empeco:v:53:y:2017:i:2:d:10.1007_s00181-016-1129-x is not listed on IDEAS

    More about this item

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • G01 - Financial Economics - - General - - - Financial Crises

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