Pass-through of exchange rates to consumption prices: what has changed and why

Jose Manuel Campa and Linda S. Goldberg ()

No 261, Staff Reports from Federal Reserve Bank of New York

Abstract: In this paper, we use cross-country and time-series evidence to argue that retail price sensitivity to exchange rates may have increased over the past decade. This finding applies to traded goods as well as to non-traded goods. We highlight three reasons for the change in pass-through into the retail prices of goods. First, pass-through may have declined at the level of import prices, but the evidence is mixed over types of goods and countries. Second, there has been a large expansion of imported input use across sectors, meaning that the costs of imported goods as well as home-tradable goods have heightened sensitivity to import prices and exchange rates. Finally, we consider whether there have been changing sectoral expenditures on distribution services, with the direction of change negatively correlated with pass-through into final consumption prices. We find that this channel, which has been a means of insulating consumption prices from import content and exchange rates, has not systematically changed in recent years. On balance, these effects support increased sensitivity of consumption prices to exchange rates, even if exchange rate pass-through into import prices has declined for some types of goods.

Keywords: Foreign exchange rates; Prices; Imports - Prices (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fmk
Date: 2006
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Related works:
Working Paper: Pass through of exchange rates to consumption prices: What has changed and why? (2006)
Working Paper: Pass Through of Exchange Rates to Consumption Prices: What has Changed and Why? (2006)
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