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Exchange Rate Pass-Through in a Small Open Economy: Panel Evidence from Hong Kong

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  • David C. Parsley

    (Vanderbilt University)

Abstract

This paper presents estimates of exchange rate pass-through derived from a panel of very disaggregated import unit-values to Hong Kong. The estimation approach builds on that utilized by Knetter (1989, 1993) to study export pricing and pricing to market. The three-dimensional data set examined comprises Hong Kong's top eight floating exchange rate trading partners, and twenty-one of the top five-digit SITC imports since 1992. Pass-through estimates for Hong Kong imply relatively faster import price adjustment than is typically found for larger, less open economies. These estimates are robust to a number of sensitivity tests. Finally these results confirm, from a different perspective, findings by Parsley (2001) that deviations from the law of one price play a relatively smaller role in real exchange rate movements for Hong Kong than for other East Asian countries.

Suggested Citation

  • David C. Parsley, 2001. "Exchange Rate Pass-Through in a Small Open Economy: Panel Evidence from Hong Kong," Working Papers 102001, Hong Kong Institute for Monetary Research.
    • Handle: RePEc:hkm:wpaper:102001
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    References listed on IDEAS

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    1. David C. Parsley & Helen A. Popper, 1998. "Exchange Rates, Domestic Prices, and Central Bank Actions: Recent U.S. Experience," Southern Economic Journal, John Wiley & Sons, vol. 64(4), pages 957-972, April.
    2. 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.
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    5. Taylor, John B., 2000. "Low inflation, pass-through, and the pricing power of firms," European Economic Review, Elsevier, vol. 44(7), pages 1389-1408, June.
    6. Parsley, David C., 2007. "Accounting for real exchange rate changes in East Asia," Journal of International Money and Finance, Elsevier, vol. 26(8), pages 1355-1377, December.
    7. Michael Bleaney, 1997. "Invoicing-Currency Effects in the Pricing of Japanese Exports of Manufactures," Canadian Journal of Economics, Canadian Economics Association, vol. 30(4), pages 968-974, November.
    8. Froot, Kenneth A & Klemperer, Paul D, 1989. "Exchange Rate Pass-Through When Market Share Matters," American Economic Review, American Economic Association, vol. 79(4), pages 637-654, September.
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    Cited by:

    1. David C. Parsley, 2012. "Exchange Rate Pass-through in South Africa: Panel Evidence from Individual Goods and Services," Journal of Development Studies, Taylor & Francis Journals, vol. 48(7), pages 832-846, January.
    2. Mehrotra, Aaron N., 2007. "Exchange and interest rate channels during a deflationary era--Evidence from Japan, Hong Kong and China," Journal of Comparative Economics, Elsevier, vol. 35(1), pages 188-210, March.
    3. repec:zbw:bofitp:2005_017 is not listed on IDEAS
    4. Sri Isnowati & Fx Sugiyanto & Akhmad Syakir Kurnia & Endang Tjahjaningsih, 2020. "Exchange Rate Pass Through Viewed from Wholesale Price in Indonesia," Montenegrin Journal of Economics, Economic Laboratory for Transition Research (ELIT), vol. 16(3), pages 137-147.
    5. Mehrotra, Aaron N., 2007. "Exchange and interest rate channels during a deflationary era--Evidence from Japan, Hong Kong and China," Journal of Comparative Economics, Elsevier, vol. 35(1), pages 188-210, March.

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