Non-linearities, asymmetries and dollar currency pricing in exchange rate pass-through: evidence from the sectoral level

Ida Hjortsoe and John Lewis

No 868, Bank of England working papers from Bank of England

Abstract: We investigate pass-through of exchange rate changes into UK import prices for 55 sectors using sector-specific exchange rate indices. Estimating a separate error correction model for each sector, we document substantial sectoral variation in pass-through, but find that compositional effects have not generated much variation in aggregate pass-through over time. Aggregating our sectoral results, we find that 74% of exchange rate changes are passed through to aggregate import prices in the long run. Pass-through is faster for larger exchange rate changes than smaller ones; and for movements driven by the US dollar than for broader based exchange rate changes. This greater sensitivity to the dollar exchange rate changes suggests the US dollar is used as a vehicle currency for invoicing some imports from non-US countries. We find no evidence of a comparable role for the euro nor for asymmetries in pass-through at the aggregate level.

Keywords: Exchange rate pass-through; import prices; vehicle currencies; non-linearities (search for similar items in EconPapers)
JEL-codes: E31 E44 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2020-06-05
New Economics Papers: this item is included in nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0868

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