Import price dynamics in major advanced economies and heterogeneity in exchange rate pass-through

Abstract

n o 9 3 3 / S e P t e m b e r 2 0 0 8 WO R K I N G PA PE R S E R I E S N O 933 / S E P T E M B E R 20 0 8In 2008 all ECB publications feature a motif taken from the 10 banknote. IMPORT PRICE DYNAMICS IN MAJOR ADVANCED ECONOMIES AND

Exchange rate pass-through to import prices in the Euro-area: A multi-currency investigation

“…Dées et al (2008) arrived at the same conclusion and argued that there is no clear evidence of decline or a rise in the degree of the aggregate (developed and emerging economies) ERPT into import prices in their estimation period. However, the Asian crisis triggered a temporary rise in the degree of the ERPT of goods coming from emerging economies.22…”

“…Whereas for China, Export Producer Price Index are extracted from Datastream (Key Mnemonic: CHPROPRCX). 14 Dées et al (2008) find that ERPT into import prices coming from emerging economies (mainly China) has risen due to changing pricing behavior on the contrary of that coming from developed economies (among of them the United Kingdom) which has decreased. As they argued, it could be the result of a gain in the comparative advantages on capital goods (characterized by high ERPT or low Pricing-to-Market) reinforced by a loss in the comparative advantages on consumption goods (characterized by low ERPT) for emerging economies and a gain in market share over time leading firms to decrease their incentive to price-to-market.…”

“…where usd t = (e us t ) π us t , pou t = (e uk t ) π uk t , yuan t = (e ch t ) π ch t refer, respectively, to US-Dollar, Pound and Chinese-Yuan weighted bilateral nominal exchange rate defined as the Euro price of one unit of foreign currency. 15 The demand condition in the importing country h are measured by ∆lnipi h t . Estimating import price index as a function of different weightedexchange rates alleviates the problem of non-identification of the relevant bilateral exchange rate, the weights of each good composing the import price index and the imported goods' country of origin mentioned in the previous section.…”

Firm Dynamics in Retail Trade: The Response of Canadian Retailers to Exchange Rate Shocks

“…Canadian tax rates were generously provided by Bev Dahlby. 16 The sample of firms is slightly reduced from that presented in Table 1 as we remove firms with missing and unusable data. In particular, for sales, employment, and profit regressions, we only include firms that survive to the end of a given year and exclude the surviving firms that are in the sample for less than three years.…”

“…Such effects are quite likely given that Donnefeld and Haug (2003) find that, depending on the industry, only 2% to 26% of goods imported into Canada are priced in Canadian dollars. Furthermore, Dees, Burgert and Parent (2008) argue that import prices in Canada are highly correlated with nominal exchange rate movements as evidenced in the bottom panel of Figure 1. Comparing the bottom panel of that figure depicting movements in the Canadian import price index with the top panel depicting fluctuations in real and nominal exchange rates, we see some evidence of a negative relationship between exchange rate movements and import prices.…”