Exchange rate pass-through into import prices: A macro or micro phenomenon?

Jose Manuel Campa and Linda S. Goldberg ()

No D/475, IESE Research Papers from IESE Business School

Abstract: Exchange rate regime optimality,as well as monetary policy effectiveness,depends on the tightness of the link between exchange rate movements and import prices.Recent debates hinge on whether producer-currency pricing (PCP)or local-currency pricing (LCP) of imports is more prevalent,and on whether exchange rate pass-through rates are endogenous to a country 's macroeconomic conditions.We provide cross-country and time series evidence on both of these issues for the imports of twenty-five OECD countries. Across the OECD,and especially within manufacturing industries,there is compelling evidence of partial pass-through in the short-run ­ rejecting both PCP and LCP. Over the long run,PCP is more prevalent for many types of imported goods.Higher inflation and exchange rate volatility are weakly associated with higher pass-through of exchange rates into import prices. However, for OECD countries,the most important determinants of changes in pass-through over time are microeconomic and relate to the industry composition of a country 's import bundle.

Keywords: Producer currency pricing; imports; monetary policy (search for similar items in EconPapers)
JEL-codes: F30 F40 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba and nep-ifn
Date: 2002-10-15
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Related works:
Working Paper: Exchange rate pass-through into import prices: a macro or micro phenomenon? (2002)
Working Paper: Exchange Rate Pass-Through into Import Prices: A Macro or Micro Phenomenon? (2002)
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Persistent link: http://EconPapers.repec.org/RePEc:ebg:iesewp:d-0475

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