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Extra-euro area manufacturing import prices and exchange rate pass-through

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  • Anderton, Robert

Abstract

This paper uses a model of import prices whereby exporters to the euro area set export prices partly as a mark-up on their production costs (i.e., the degree of exchange rate pass-through) and partly in line with euro area producer prices (i.e., pricing-to-market). Using both time series and panel estimation techniques, the econometric results suggest that the pass through of changes in the effective exchange rate of the euro to the price of extra-euro area imports of manufactures is around 50% - 70%, while pricing-to-market has an estimated weight of between 50% - 30%. We also find some evidence of differences across import suppliers, with EU member states who are not part of the euro area assigning a relatively larger weight to pricing-to-market, while euro area imports from the United States seem to be characterised by a relatively higher degree of exchange rate pass-through. JEL Classification: D40, E30, F10, F31

Suggested Citation

  • Anderton, Robert, 2003. "Extra-euro area manufacturing import prices and exchange rate pass-through," Working Paper Series 219, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:2003219
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    References listed on IDEAS

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    1. Andrew C. Harvey, 1990. "The Econometric Analysis of Time Series, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 026208189x, May.
    2. Banerjee, Anindya & Dolado, Juan J. & Galbraith, John W. & Hendry, David, 1993. "Co-integration, Error Correction, and the Econometric Analysis of Non-Stationary Data," OUP Catalogue, Oxford University Press, number 9780198288107.
    3. Baldwin, Richard, 1988. "Hyteresis in Import Prices: The Beachhead Effect," American Economic Review, American Economic Association, vol. 78(4), pages 773-785, September.
    4. Pinelopi Koujianou Goldberg & Michael M. Knetter, 1997. "Goods Prices and Exchange Rates: What Have We Learned?," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1243-1272, September.
    5. Avinash Dixit, 1989. "Hysteresis, Import Penetration, and Exchange Rate Pass-Through," The Quarterly Journal of Economics, Oxford University Press, vol. 104(2), pages 205-228.
    6. Athukorala, Premachandra & Menon, Jayant, 1994. "Pricing to Market Behaviour and Exchange Rate Pass-Through in Japanese Exports," Economic Journal, Royal Economic Society, vol. 104(423), pages 271-281, March.
    7. Doornik, Jurgen A & Hendry, David F & Nielsen, Bent, 1998. " Inference in Cointegrating Models: UK M1 Revisited," Journal of Economic Surveys, Wiley Blackwell, vol. 12(5), pages 533-572, December.
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    11. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
    12. Luca Buldorini & Stelios Makrydakis & Christian Thimann, 2002. "The effective exchange rates of the euro," Occasional Paper Series 02, European Central Bank.
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    More about this item

    Keywords

    exchange rate pass through; extra-euro area import prices; pricing-to-market;

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • F10 - International Economics - - Trade - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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