Exchange Rate Pass-Through into Import Prices: A Macro or Micro Phenomenon?

33 Pages Posted: 31 Jul 2006

See all articles by José Manuel Campa

José Manuel Campa

University of Navarra - Madrid Campus - IESE Business School; National Bureau of Economic Research (NBER)

Linda S. Goldberg

Federal Reserve Bank of New York; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: May 2002

Abstract

Exchange rate regime optimality, as well as monetary policy effectiveness, depends on the tightness of the link between exchange rate movements and import prices. Recent debates hinge on whether producer-currency-pricing (PCP) or local currency pricing (LCP) of imports is more prevalent, and on whether exchange rate pass-through rates are endogenous to a country's macroeconomic conditions. We provide cross-country and time series evidence on both of these issues for the imports of twenty-five OECD countries. Across the OECD and especially within manufacturing industries, there is compelling evidence of partial pass-through in the short-run- rejecting both PCP and LCP. Over the long run, PCP is more prevalent for many types of imported goods. Higher inflation and exchange rate volatility are weakly associated with higher pass-through of exchange rates into import prices. However, for OECD countries, the most important determinants of changes in pass-through over time are microeconomic and relate to the industry composition of a country's import bundle.

Keywords: exchange rate, inflation, pass through, local currency pricing, producer currency pricing, OECD

JEL Classification: F3, F4

Suggested Citation

Campa, José Manuel and Goldberg, Linda S., Exchange Rate Pass-Through into Import Prices: A Macro or Micro Phenomenon? (May 2002). FRB of New York Staff Report No. 149. Available at SSRN: https://ssrn.com/abstract=920835 or http://dx.doi.org/10.2139/ssrn.920835

José Manuel Campa

University of Navarra - Madrid Campus - IESE Business School ( email )

Camino del Cerro del Aguila 3
Madrid, 28023
Spain
+34 91 357 0809 (Phone)
+34 91 357 2913 (Fax)

National Bureau of Economic Research (NBER)

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Linda S. Goldberg (Contact Author)

Federal Reserve Bank of New York ( email )

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New York, NY 10045
United States
212-720-2836 (Phone)
212-720-6831 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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