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Exchange rate pass-through in the global economy – the role of emerging market economies

Matthieu Bussiere () and Tuomas Peltonen
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Tuomas Peltonen: BOFIT, Postal: Bank of Finland, BOFIT, P.O. Box 160, FI-00101 Helsinki, Finland

No 25/2008, BOFIT Discussion Papers from Bank of Finland, Institute for Economies in Transition

Abstract: This paper estimates export and import price equations for 41 countries –including 28 emerging market economies. Further, it relates the estimated elasticities to structural factors and tests for statistical breaks in the relation between trade prices and exchange rates. Results indicate that (i) the elasticity of trade prices in emerging markets is sizeable, but not significantly higher than in advanced economies; (ii) such elasticity is primarily influenced by macroeconomic factors such as the exchange rate regime and the inflationary environment, although microeconomic factors such as product differentiation also play a role; (iii) export and import price elasticities tend to be strongly correlated across countries; (iv) pass-through to import prices has declined in some advanced economies, noticeably the United States; this is consistent with a rise in pricing-to-market in several EMEs and especially with a change in the geographical composition of U.S. imports.

Keywords: emerging market economies; exchange rate pass-through; pricing-to-market; local and producer currency pricing; exchange rate regime (search for similar items in EconPapers)
JEL-codes: F10 F30 F41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-ifn, nep-mon and nep-opm
Date: 2008-12-13
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