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Exchange rate pass-through, markups, and inventories

  • Adam Copeland
  • James A. Kahn

A large body of research has established that exporters do not fully adjust their prices across countries in response to exchange rate movements, but instead allow their markups to vary. But while markups are difficult to observe directly, we show in this paper that inventory-sales ratios provide an observable counterpart. We then find evidence that inventory-sales ratios of imported vehicles respond to exchange rate movements to a degree consistent with pass-through on the order of 50 to 75 percent, on the high end of the range found in the literature.

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Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 584.

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Date of creation: 2012
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Handle: RePEc:fip:fednsr:584
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  1. Lukasz A. Drozd & Jaromir B. Nosal, 2012. "Understanding International Prices: Customers as Capital," American Economic Review, American Economic Association, vol. 102(1), pages 364-95, February.
  2. Adam Copeland & George Hall, 2005. "The Response of Prices, Sales, and Output to Temporary Changes in Demand," Cowles Foundation Discussion Papers 1543, Cowles Foundation for Research in Economics, Yale University.
  3. repec:oup:restud:v:68:y:2001:i:4:p:811-48 is not listed on IDEAS
  4. Adam Copeland & James A. Kahn, 2011. "The production impact of "cash-for-clunkers": implications for stabilization policy," Staff Reports 503, Federal Reserve Bank of New York.
  5. Dennis W. Carlton, 1983. "Equilibrium Fluctuations When Price and Delivery Lag Clear the Market," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 562-572, Autumn.
  6. Pinelopi K. Goldberg & Michael M. Knetter, 1996. "Goods Prices and Exchange Rates: What Have We Learned?," NBER Working Papers 5862, National Bureau of Economic Research, Inc.
  7. Marston, Richard C., 1990. "Pricing to market in Japanese manufacturing," Journal of International Economics, Elsevier, vol. 29(3-4), pages 217-236, November.
  8. Hellerstein, Rebecca & Villas-Boas, Sofia B, 2006. "Outsourcing and pass-through," CUDARE Working Paper Series 1016R3, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy, revised Feb 2010.
  9. Peter Hooper & Catherine L. Mann, 1989. "Exchange Rate Pass-through in the 1980s: The Case of U.S. Imports of Manufactures," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(1), pages 297-337.
  10. Hellerstein, Rebecca, 2008. "Who bears the cost of a change in the exchange rate? Pass-through accounting for the case of beer," Journal of International Economics, Elsevier, vol. 76(1), pages 14-32, September.
  11. Gagnon, Joseph E. & Knetter, Michael M., 1995. "Markup adjustment and exchange rate fluctuations: evidence from panel data on automobile exports," Journal of International Money and Finance, Elsevier, vol. 14(2), pages 289-310, April.
  12. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  13. repec:oup:qjecon:v:107:y:1992:i:2:p:481-510 is not listed on IDEAS
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