DP4391 Exchange Rate Pass-Through into Import Prices

Author(s): José Manuel Campa , Linda S. Goldberg

Publication Date: May 2004

Keyword(s): exchange rates , pass-through , trade composition

JEL(s): F30 , F40

Programme Areas: International Macroeconomics

Link to this Page: www.cepr.org/pubs/dps/DP4391.asp

We provide cross-country and time series evidence on the extent of exchange rate pass-through into the import prices of 25 OECD countries. Across the OECD and especially within manufacturing industries, we find compelling evidence of partial pass-through in the short run, rejecting both producer-currency pricing and local currency pricing. Over the long run, producer-currency pricing is more prevalent for many types of imported goods. We show that many countries have experienced changes in exchange rate pass-through over the past decades. While we find that countries with higher rates of exchange rate volatility are also those with higher pass-through elasticities, we also conclude that macroeconomic variables have played only a minor role in accounting for the evolution of OECD pass-through over time. Far more important for pass-through changes have been the dramatic shifts in the composition of country import bundles.