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Exchange rates and the prices of manufacturing products imported into the United States

Giovanni Olivei

New England Economic Review, 2002, issue Q 1, 3 - 18

Abstract: Local-currency prices of foreign products do not usually respond one-for-one to changes in the exchange rate. The extent and pervasiveness of this incomplete "pass-through" of exchange rates to import prices has long been debated. Yet, despite the abundance of empirical research on the relationship between exchange rates and import prices, there is little systematic evidence on the time-series dimension of pass-through that encompasses the most recent years. ; In this article, the author provides some updated estimates of the responsiveness of U.S. import prices to changes in the exchange rate in a sample of manufacturing industries over the period 1981 to 1999. Passthrough is generally incomplete, but there is a considerable degree of variation across different industries. The author also documents a decline in pass-through for the majority of examined industries in the most recent decade. While pass-through was 0.50 on average in the 1980s, it dropped to an average of about 0.25 in the 1990s. Thus, during the 1990s larger changes in the exchange rate were needed to move the dollar price of imported goods relative to the price of domestic goods. As with other studies, the author finds that it is difficult to relate the change in passthrough to macroeconomic outcomes such as the lower inflation rates achieved in many countries.

Keywords: Foreign exchange; Prices; Imports (search for similar items in EconPapers)
Date: 2002
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Handle: RePEc:fip:fedbne:y:2002:i:q1:p:3-18