Exchange Rate Pass-through in Canadian Manufacturing: Its Direct and Indirect Components

Stan Kardasz and Ken Stollery
Additional contact information
Stan Kardasz: Department of Economics, University of Waterloo
Ken Stollery: Department of Economics, University of Waterloo

No 4001, Working Papers from University of Waterloo, Department of Economics

Abstract: Changes in the exchange rate have direct and indirect effects on the prices of domestically produced goods and imports in the domestic market. The direct effects originate with the impact of the exchange rate on the marginal cost of imports; the indirect effects, with its impact on the price of materials used by domestic producers and hence on their marginal costs. Direct and indirect exchange rate pass-through elasticities are estimated for thirty-seven Canadian manufacturing industries and their determinants are examined in a cross-section analysis. We find that the direct and indirect elasticities are approximately equal in size for domestic goods, while the direct effect is dominant for imports. For a small number of industries, the net result of the direct and indirect effects is that a depreciation of the domestic currency increases the competitiveness of imports, contrary to conventional analysis. Important determinants of the direct (indirect) elasticities are the import share and non-tariff barriers (the responsiveness of domestic costs to changes in the exchange rate, and concentration).

Pages: 36 pages
Date: 2004-01, Revised 2004-01
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://uwaterloo.ca/economics/sites/ca.economics/ ... %20Manufacturing.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wat:wpaper:04001

Access Statistics for this paper

More papers in Working Papers from University of Waterloo, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Sherri Anne Arsenault ().