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Exchange rate pass-through into import prices: A macro or micro phenomenon?

  • Campa, Jose M.

    ()

    (IESE Business School)

  • Goldberg, Linda S.

    ()

    (Federal Reserve Bank of New York)

Exchange rate regime optimality,as well as monetary policy effectiveness,depends on the tightness of the link between exchange rate movements and import prices.Recent debates hinge on whether producer-currency pricing (PCP)or local-currency pricing (LCP) of imports is more prevalent,and on whether exchange rate pass-through rates are endogenous to a country 's macroeconomic conditions.We provide cross-country and time series evidence on both of these issues for the imports of twenty-five OECD countries. Across the OECD,and especially within manufacturing industries,there is compelling evidence of partial pass-through in the short-run ­ rejecting both PCP and LCP. Over the long run,PCP is more prevalent for many types of imported goods.Higher inflation and exchange rate volatility are weakly associated with higher pass-through of exchange rates into import prices. However, for OECD countries,the most important determinants of changes in pass-through over time are microeconomic and relate to the industry composition of a country 's import bundle.

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Paper provided by IESE Business School in its series IESE Research Papers with number D/475.

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Length: 29 pages
Date of creation: 15 Oct 2002
Date of revision:
Handle: RePEc:ebg:iesewp:d-0475
Contact details of provider: Postal: IESE Business School, Av Pearson 21, 08034 Barcelona, SPAIN
Web page: http://www.iese.edu/

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