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Exchange rate pass-through in U. S. manufacturing: exchange rate index choice and asymmetry issues

  • Cletus C. Coughlin
  • Patricia S. Pollard

This paper explores two issues that have received limited attention in the exchange rate pass-through literature. First, are the pass-through estimates sensitive to the choice of the exchange rate index? Second, are pass-through estimates asymmetric with respect to the sign of exchange rate changes? Using data for 87 industries, we find that the answer to both questions is yes. J-test results indicate that the "Major" exchange rate index produced by the Board of Governors of the Federal Reserve System tends to fit the data better than two alternative indexes. With respect to asymmetry, we find that pass-through is both more likely and greater in magnitude when the dollar is depreciating than when it is appreciating.

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Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2000-022.

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Date of creation: 2000
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Handle: RePEc:fip:fedlwp:2000-022
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  1. Sam Peltzman, 2000. "Prices Rise Faster than They Fall," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 466-502, June.
  2. Feinberg, Robert M, 1991. "The Choice of Exchange-Rate Index and Domestic Price Passthrough," Journal of Industrial Economics, Wiley Blackwell, vol. 39(4), pages 409-20, June.
  3. Wing T. Woo, 1984. "Exchange Rates and the Prices of Nonfood, Nonfuel Products," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 15(2), pages 511-536.
  4. Catherine L. Mann, 1986. "Prices, profit margins, and exchange rates," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jun, pages 366-379.
  5. Cletus C. Coughlin & Patricia S. Pollard & Jerram C. Betts, 1997. "To chain or not to chain trade-weighted exchange rate indexes," Working Papers 1996-010, Federal Reserve Bank of St. Louis.
  6. Prema-chandra Athukorala, 1990. "Exchange Rate Pass Through: The Case of Korean Exports of Manufacturers," Working Papers 1990.08, School of Economics, La Trobe University.
  7. Goldberg, Pinelopi Koujianou, 1995. "Product Differentiation and Oligopoly in International Markets: The Case of the U.S. Automobile Industry," Econometrica, Econometric Society, vol. 63(4), pages 891-951, July.
  8. Russell Davidson & James G. MacKinnon, 1980. "Several Tests for Model Specification in the Presence of Alternative Hypotheses," Working Papers 378, Queen's University, Department of Economics.
  9. Salvador Gil-Pareja, 2000. "Exchange rates and European countries’ export prices: An empirical test for asymmetries in pricing to market behavior," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 136(1), pages 1-23, March.
  10. Marston, Richard C., 1990. "Pricing to market in Japanese manufacturing," Journal of International Economics, Elsevier, vol. 29(3-4), pages 217-236, November.
  11. Kadiyali, Vrinda, 1997. "Exchange rate pass-through for strategic pricing and advertising: An empirical analysis of the U.S. photographic film industry," Journal of International Economics, Elsevier, vol. 43(3-4), pages 437-461, November.
  12. Anne Gron & Deborah L. Swenson, 2000. "Cost Pass-Through in the U.S. Automobile Market," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 316-324, May.
  13. Michael P. Leahy, 1998. "New summary measures of the foreign exchange value of the dollar," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Oct, pages 811-818.
  14. Cletus C. Coughlin & Patricia S. Pollard, 1996. "A question of measurement: is the dollar rising or falling?," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 3-18.
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