Pass-through of Competitors' Exchange Rates to U.S. Import and Producer Prices
This paper shows that in theory and BLS microdata, the prices of imported goods respond to the exchange rates (ER) of the producer's foreign competitors. In contrast, standard models have no role for competitors' ERs. Excluding the effect...
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| Format: | Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2017
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| Online Access: | http://documents.worldbank.org/curated/en/515151482175641851/Pass-through-of-competitors-exchange-rates-to-us-import-and-producer-prices http://hdl.handle.net/10986/25829 |
| Summary: | This paper shows that in theory and BLS
microdata, the prices of imported goods respond to the
exchange rates (ER) of the producer's foreign
competitors. In contrast, standard models have no role for
competitors' ERs. Excluding the effects of
competitors' exchange rates typically biases upwards
estimates of bilateral exchange rate pass-through because
competitors' ERs and bilateral ERs are positively
correlated. A multi-country version of Atkeson and
Burstein's (2008) industry aggregation model is able to
explain a sizable proportion of pass-through of
competitors' exchange rates to import prices, and also
predicts pass-through of foreign competitors' prices
and pass-through of competitors' ERs to US producer
prices -- both of which are supported in the data. The
results suggest that pass-through will be larger for ER
movements shared by a greater fraction of foreign competitor countries. |
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