Exchange rate pass-through to U.S. import prices: some new evidence

By N. Sheets, Mario Marazzi, Robert J. Vigfusson, Jon Faust, Joseph E. Gagnon, Robert F. Martin, Jaime R. Marquez, T. Reeve, J. Rogers. 2005

169 citations recorded by the source corpus.

This paper documents a sustained decline in exchange rate pass-through to U.S. import prices, from above 0.5 during the 1980s to somewhere in the neighborhood of 0.2 during the last decade. This decline in the pass-through coefficient is robust to the measure of foreign prices that is included in the regression (i.e., CPI versus PPI), whether the estimation is done in levels or differences, and whether U.S. prices are included as an explanatory variable. Notably, the largest estimates of pass-through are obtained when commodity prices are excluded from the regression. In this case, the pass-through coefficient captures both the direct effect of the exchange rate on import prices and an indirect effect operating through changes in commodity prices. Our work indicates that an increasing share of exchange rate pass-through has occurred through this commodity-price channel in recent years. While the source of the decline in pass-through is difficult to pin down with certainty, our work points to several factors, including the reduced share of (commodity-intensive) industrial supplies in U.S. imports and the increased presence of Chinese exporters in U.S. markets. We detect a particular step down in the pass-through coefficient around the time of the Asian financial crisis and document a shift in the export pricing behavior of emerging Asian firms around that time.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/0398258570ce135dcbdb0647a2fb728d52072998

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

1. S. Leduc
2. Christopher J. Gust
3. Robert J. Vigfusson
4. Lutz Kilian
5. V. Ramey
6. Gita Gopinath
7. Oleg Itskhoki

In Finance

1. S. Leduc
2. Christopher J. Gust
3. Robert J. Vigfusson

Citations in the corpus

• Trade Integration, Competition, and the Decline in Exchange-Rate Pass-Through (2006, background): “…estimates to Marazzi, Sheets, and Vigfusson (2005) regarding the change in the relationship between import prices and the exchange rate.10 10 When estimating pass-through, Marazzi, Sheets, and Vigfusson (2005) control for movements in marginal costs using foreign CPIs and commodity prices.”
• SIGMA: a new open economy model for policy analysis (2005, unknown): “As in McCallum and Nelson (1999) and in Kollman (2001), in this simulation we shock the exogenous component of the risk premium in the uncovered interest parity condition implied by the log-linearized model.”
• Exchange Rate Pass‐Through to Trade Prices: The Role of Nonlinearities and Asymmetries (2013, unknown): “This can be in particular the case of several emerging markets in Asia, as pointed out for instance in Marazzi et al. (2006), see in particular exhibit 19 p.”