EconPapers    
Economics at your fingertips  
 

The Sensitivity of Producer Prices to Exchange Rates: Insights from Micro Data

Shutao Cao, Wei Dong and Ben Tomlin ()

Staff Working Papers from Bank of Canada

Abstract: This paper studies the sensitivity of Canadian producer prices to the Canada-U.S. exchange rate. Using a unique product-level price data set, we estimate and analyze the impact of movements in the exchange rate on both domestic and export producer prices. First, we find that both domestic and export prices are sensitive to movements in the exchange rate. A one percent depreciation in Canadian dollar is associated with a 0.18 (0.25 conditional on price changes in the currency of pricing) percent increase in domestic prices, and a 0.39 (0.60 conditional on price changes in the currency of pricing) percent increase in export prices (once prices are converted into a single currency). Next, we find that there is an important difference in export price sensitivity to the exchange rate depending on the currency of pricing. Those Canadian producers that invoice their exported products in Canadian dollars do not adjust prices to movements in the exchange rate. Meanwhile, those invoicing in U.S. dollars increase their Canadian dollar prices when the Canadian dollar depreciates. Finally, for the same good sold in both the domestic and U.S. markets, the currency of pricing appears to play an important role in determining mark-up adjustment and the degree of pricing to market. These findings shed light on understanding the sources of incomplete exchange rate pass-through into import prices, as well as the indirect effect of the exchange rates on domestic prices through import competition and the use of imported inputs.

Keywords: Exchange rates; Inflation and prices; Market structure and pricing (search for similar items in EconPapers)
JEL-codes: E30 F31 F41 L11 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2012
New Economics Papers: this item is included in nep-hme, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15) Track citations by RSS feed

Downloads: (external link)
https://www.bankofcanada.ca/wp-content/uploads/2012/07/wp2012-20.pdf

Related works:
Journal Article: Pricing-to-market, currency invoicing and exchange rate pass-through to producer prices (2015) Downloads
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:bca:bocawp:12-20

Access Statistics for this paper

More papers in Staff Working Papers from Bank of Canada 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2023-01-25
Handle: RePEc:bca:bocawp:12-20