Passthrough Estimates and the Choice of an Exchange Rate Index

19 Pages Posted: 16 Aug 2006

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

Abstract

We examine exchange rate passthrough into US import prices for 29 manufacturing industries using eight exchange rate indexes. These indexes vary by the number of currencies included; whether the weight on each currency is based on total trade with the United States or solely imports; and, whether the weights vary by industry. Our results indicate that passthrough is generally incomplete but varies across industries. Moreover, passthrough is sensitive to the exchange rate index. Using bootstrapped J-tests we show that major currency indexes perform better than their broad currency counterparts. When using a major currency index, industry-specific exchange rate indexes are preferred to aggregate indexes.

Suggested Citation

Pollard, Patricia S. and Coughlin, Cletus C., Passthrough Estimates and the Choice of an Exchange Rate Index. Review of International Economics, Vol. 14, No. 4, pp. 535-553, September 2006. Available at SSRN: https://ssrn.com/abstract=924468 or http://dx.doi.org/10.1111/j.1467-9396.2006.00642.x

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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