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Passthrough Estimates and the Choice of an Exchange Rate Index*

Patricia Pollard () and Cletus Coughlin ()

Review of International Economics, 2006, vol. 14, issue 4, 535-553

Abstract: We examine exchange rate passthrough into US import prices for 29 manufacturing industries using eight exchange rate indexes. These indexes vary by the number of currencies included; whether the weight on each currency is based on total trade with the United States or solely imports; and, whether the weights vary by industry. Our results indicate that passthrough is generally incomplete but varies across industries. Moreover, passthrough is sensitive to the exchange rate index. Using bootstrapped J‐tests we show that major currency indexes perform better than their broad currency counterparts. When using a major currency index, industry‐specific exchange rate indexes are preferred to aggregate indexes.

Date: 2006
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Handle: RePEc:bla:reviec:v:14:y:2006:i:4:p:535-553