International Trade Price Stickiness and Exchange Rate and Pass-Through in Micro Data: A Case Study on US-China Trade

Mina Kim, Deokwoo Nam, Jian Wang and Jason Wu ()
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Deokwoo Nam: City University of Hong Kong

No 202013, Working Papers from Hong Kong Institute for Monetary Research

Abstract: The interaction between the exchange rate regime, trade firms' price-setting behavior, and exchange rate pass-through (ERPT) is an important topic in international economics. This paper studies this using a goods-level dataset of US-China trade prices collected by the US Bureau of Labor Statistics. We document that the duration of US-China trade prices has declined almost 30% since China abandoned its hard peg to the US dollar in June 2005. A benchmark menu cost model that is calibrated to the data can replicate the documented decrease in price stickiness. We also estimate ERPT of Renminbi (RMB) appreciation into US import prices between 2005 and 2008. Goods-level data allows us to estimate that the lifelong ERPT is close to one for goods that have at least one price change, but less than one-half when all goods are included. This finding can be attributed to the fact that around 40% of the goods never experienced a price change, and supports the hypothesis that price changes that take the form of product replacements may bias ERPT estimates downwards.

Keywords: Price Stickiness; Menu Cost Model; International Trade Prices; RMB; Exchange Rate Pass-Through (search for similar items in EconPapers)
JEL-codes: E31 F14 F31 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2013-10
New Economics Papers: this item is included in nep-ifn, nep-mac, nep-opm and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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