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Exchange Rate Pass-Through, Domestic Competition, and Inflation: Evidence from the 2005/08 Revaluation of the Renminbi

Raphael Auer

No 10344, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Import competition from China is pervasive in the sense that for many good categories, the competitive environment that US firms face in these markets is strongly driven by the prices of Chinese imports, and so is their pricing decision. This paper quantifies the effect of the government-controlled appreciation of the Chinese renminbi vis-à-vis the USD from 2005 to 2008 on the prices charged by US domestic producers. In a panel spanning the period from 1994 to 2010 and including up to 519 manufacturing sectors, import price changes of Chinese goods pass into US producer prices at an average rate of 0.7, while import price changes that can be traced back to exchange rate movements of other trade partners only have mild effects on US prices. Further analysis points to the importance of trade integration, variable markups, and demand complementarities on the one side, and to the importance of imported intermediate goods on the other side as drivers of these patterns. Simulations incorporating these microeconomic findings reveal that a substantial revaluation of the renminbi would result in a pronounced increase of aggregate US producer price inflation.

Keywords: China; exchange rate pass-through; inflation; monetary policy; price complementarities (search for similar items in EconPapers)
JEL-codes: E31 E37 F11 F12 F14 F15 F16 F40 L16 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int, nep-mac, nep-mon, nep-opm and nep-tra
Date: 2015-01
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Related works:
Journal Article: Exchange Rate Pass‐Through, Domestic Competition, and Inflation: Evidence from the 2005–08 Revaluation of the Renminbi (2015) Downloads
Working Paper: Exchange Rate Pass-Through, Domestic Competition, and Infl?ation: Evidence from the 2005/08 Revaluation of the Renminbi (2014) Downloads
Working Paper: Exchange Rate Pass-Through, Domestic Competition, and Inflation: Evidence from the 2005/08 Revaluation of the Renminbi (2012) Downloads
Working Paper: Exchange Rate Pass-Through, Domestic Competition, and Inflation: Evidence from the 2005/08 Revaluation of the Renminbi (2012) Downloads
Working Paper: Exchange rate pass-through, domestic competition and inflation -- evidence from the 2005/08 revaluation of the Renminbi (2011) Downloads
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