Pass Through of Exchange Rates to Consumption Prices: What has Changed and Why? / Jose Manuel Campa, Linda S. Goldberg.

Format:

Book

Author/Creator:

Campa, Jose Manuel.

Contributor:

National Bureau of Economic Research.

Goldberg, Linda S.

Series:

Working Paper Series (National Bureau of Economic Research) no. w12547.

NBER working paper series no. w12547

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Pass Through of Exchange Rates to Consumption Prices

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2006.

Summary:

In this paper, we use cross-county and time series evidence to argue that retail price sensitivity to exchange rates may have increased over the past decade. This finding applies to traded goods, as well as to non-traded goods. We highlight three reasons for changing pass through at the level of retail prices of goods. First, pass through may have declined at the level of import prices, but the evidence is mixed over types of goods and countries. Second, there has been a large expansion of imported input use across sectors. This means that the costs of imported goods as well as home tradable goods have heightened sensitivity to import prices and exchange rates. The final channel we consider is whether there have been changing sectoral expenditures on distribution services, with the direction of change negatively correlated with pass through into final consumption prices. We find that this channel, which has been a means of insulating consumption prices from import content and exchange rates, has not systematically changed in recent years. The balance of effects weighs in favor of increased sensitivity of consumption prices to exchange rates, even if exchange-rate pass-through into import prices has declined for some types of goods.

Notes:

Print version record

October 2006.