Pass-Through Estimates and the Choice of an Exchange Rate Index

GEP Working Paper No. 03/12

43 Pages Posted: 14 Jul 2003

See all articles by Patricia S. Pollard

Patricia S. Pollard

Federal Reserve Bank of St. Louis, Research Division

Cletus C. Coughlin

Federal Reserve Bank of St. Louis - Research Division

Date Written: May 2003

Abstract

This paper examines exchange rate pass-through into U.S. import prices in 29 manufacturing industries focusing on the choice of the exchange rate index. We create eight different exchange rate indexes. These vary by the number of countries whose currencies are included, whether the weight given to each currency is based on total trade with the United States or U.S. imports only, and whether the weights vary by industry. Our results support previous findings that pass-through is generally incomplete but varies across industries. Moreover, we find that pass-through estimates are sensitive to the choice of the exchange rate index. Using bootstrapped J tests we show that major currency indexes perform better than their broad currency counterparts. In addition, when using a major currency index, industry-specific exchange rate indexes are preferred to aggregate indexes.

Keywords: pass-though, index choice

JEL Classification: F14, F31

Suggested Citation

Pollard, Patricia S. and Coughlin, Cletus C., Pass-Through Estimates and the Choice of an Exchange Rate Index (May 2003). GEP Working Paper No. 03/12. Available at SSRN: https://ssrn.com/abstract=410762 or http://dx.doi.org/10.2139/ssrn.410762

Patricia S. Pollard (Contact Author)

Federal Reserve Bank of St. Louis, Research Division ( email )

411 Locust St
P.O. Box 442
St. Louis, MO 63011
United States
314-444-8557 (Phone)
314-444-8731 (Fax)

Cletus C. Coughlin

Federal Reserve Bank of St. Louis - Research Division ( email )

411 Locust St
Saint Louis, MO 63011
United States

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