Invoicing Currency and Symmetric Pass-Through of Exchange Rates and Tariffs: Evidence from Malawian Imports from the EU

Angella Montfaucon

International Economics, 2022, vol. 169, issue C, 191-207

Abstract: The response of import prices to exchange rates can be used to predict the effect of changes in trade policy, as the symmetric hypothesis asserts that the effect of tariffs and exchange rates on prices are identical. This paper examines whether the hypothesis holds in the context of various invoicing currencies, using transaction-level data of Malawian imports from the European Union (EU). The findings show that the U.S. dollar has the highest invoicing share, and the pass-through of exchange rate and tariff shocks on importers is high, but not necessarily equal, when the currency of invoicing is considered. Crucially, the tariff pass-through to prices is higher than the exchange rate pass-through, with important differences across countries, currencies and sectors. Thus, in order to predict the effects of trade policy, bilateral exchange rates may not be suitable for capturing exchange rate pass-through for small developing countries, especially import-dependent ones such as Malawi.

Keywords: Euro area; Invoicing currency; Tariff pass-through; Exchange rates; Vehicle pricing (search for similar items in EconPapers)
JEL-codes: E31 F31 F40 F41 F45 (search for similar items in EconPapers)
Date: 2022
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Journal Article: Invoicing Currency and Symmetric Pass-Through of Exchange Rates and Tariffs: Evidence from Malawian Imports from the EU (2022)
Working Paper: Invoicing Currency and Symmetric Pass-Through of Exchange Rates and Tariffs: Evidence from Malawian Imports from the EU (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inteco:v:169:y:2022:i:c:p:191-207

DOI: 10.1016/j.inteco.2021.12.005

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