European Business Schools Librarian's Group

IESE Research Papers,
IESE Business School

No D/475: Exchange rate pass-through into import prices: A macro or micro phenomenon?

Jose M. Campa () and Linda S. Goldberg ()
Additional contact information
Jose M. Campa: IESE Business School, Postal: IESE Business School. Research Division, Av Pearson 21, 08034 Barcelona, SPAIN
Linda S. Goldberg: Federal Reserve Bank of New York

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: Producer currency pricing; imports; monetary policy

JEL-codes: F30; F40

29 pages, October 15, 2002

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