Exchange rate pass-through to import prices: accounting for changes in the eurozone trade structure
- PDF / 1,869,559 Bytes
- 24 Pages / 439.37 x 666.142 pts Page_size
- 93 Downloads / 177 Views
Exchange rate pass‑through to import prices: accounting for changes in the eurozone trade structure Antonia López‑Villavicencio1 · Valérie Mignon1,2
© Kiel Institute 2020
Abstract This paper assesses the effect of the emergence of new trading partners (i.e., China and Eastern Europe) on the exchange rate pass-through (ERPT) to import prices in eurozone countries. To this end, we rely on bilateral data on imports of manufactured goods at the two-digit sector level over the 2000–2018 period. We find that (i) pass-through is complete in many cases, (ii) ERPT from China is higher than from the United States, and (iii) there is no generalized link between ERPT and the increasing integration of some emerging markets in European imports. We also show that the launch of the single currency has not provoked a sufficient change in the part of trade exposed to exchange rate fluctuations and, therefore, has not affected the pass-through. Keywords Exchange rate pass-through · Import prices · China · Eastern Europe · Eurozone JEL Classification E31 · F31 · F4 · C22
We would like to thank the editor, two anonymous referees, Anne-Laure Delatte and Sébastien Jean for helpful remarks and suggestions. Electronic supplementary material The online version of this article (https://doi.org/10.1007/s1029 0-020-00382-2) contains supplementary material, which is available to authorized users. * Valérie Mignon [email protected] Antonia López‑Villavicencio [email protected] 1
EconomiX‑CNRS, University of Paris Nanterre, Nanterre, France
2
CEPII, International Macroeconomics and Finance Research Group, Paris, France
13
Vol.:(0123456789)
A. López‑Villavicencio, V. Mignon
1 Introduction The exchange rate pass-through (ERPT from now on), understood as the extent to which an exchange rate change is reflected in import and/or consumer prices, is a central concept in international trade and macroeconomics, both from theoretical and empirical viewpoints (see Knetter 1989; Campa and Goldberg 2005; and Burstein and Gopinath 2014). A large body of the related literature puts forward that ERPT is incomplete and has been steadily declining over the past few decades. From a theoretical perspective, the decline in the degree of pass-through has both macroeconomic and microeconomic sources. The main explanations proposed in the literature are (i) the presence of nominal rigidities impeding prices’ responses in the short term (Monacelli 2005), (ii) an increasing pricing-to-market behavior of firms (Betts and Devereux 2000),1 and (iii) the existence of a stable and predictable monetary policy environment in which nominal shocks play a vastly reduced role in driving fluctuations in prices and the exchange rate (Taylor 2000). The literature is, however, far from conclusive in identifying with certainty the origin of incomplete and declining rates of ERPT (see, for instance, Aron et al. 2014; López-Villavicencio and Mignon 2017, 2018; and the references therein). Given this absence of clear-cut results regarding monetar
Data Loading...
