Exchange Rate Pass-Through to Export Prices: Assessing Some Cross-Country Evidence

47 Pages Posted: 24 Sep 2007

See all articles by Robert J. Vigfusson

Robert J. Vigfusson

Board of Governors of the Federal Reserve System

Nathan Sheets

Board of Governors of the Federal Reserve System

Joseph Gagnon

Peterson Institute

Date Written: September 2007

Abstract

A growing body of empirical work has found evidence of a decline in exchange rate pass-through to import prices in a number of industrial countries. Our paper complements this work by examining pass-through from the other side of the transaction; that is, we assess the exchange rate sensitivity of export prices (denominated in the exporter's currency). We first sketch out a streamlined analytical model that highlights some key factors that determine pass-through. Using this model as reference, we find that the prices charged on exports to the United States are more responsive to the exchange rate than is the case for export prices to other destinations, which is consistent with results in the literature suggesting that import price pass-through in the U.S. market is relatively low. We also find that moves in the exchange rate sensitivity of export prices over time have been significantly affected by country and region-specific factors, including the Asian financial crisis (for emerging Asia), deepening integration with the United States (for Canada), and the effects of the 1992 ERM crisis (for the United Kingdom).

JEL Classification: E31, F30, F41

Suggested Citation

Vigfusson, Robert John and Sheets, Nathan and Gagnon, Joseph, Exchange Rate Pass-Through to Export Prices: Assessing Some Cross-Country Evidence (September 2007). FRB International Finance Discussion Paper No. 902, Available at SSRN: https://ssrn.com/abstract=1016075 or http://dx.doi.org/10.2139/ssrn.1016075

Robert John Vigfusson (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Nathan Sheets

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
202-452-3819 (Phone)
202-736-5638 (Fax)

Joseph Gagnon

Peterson Institute ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

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