A distinctive feature of present globalization is the development of international production sharing activities (i.e. production fragmentation). The recent developments in transportation and communication technologies led to a surge in intermediate goods trade. However, intermediate goods trade is often neglected in the empirical studies of the exchange rate pass-through (ERPT). Using import unit values of 79 motor vehicle products and 245 auto-part products, which are classified by the 10-digit level of Harmonized Tariff Schedule (HTS), this study examines the pass-through of exchange rate changes into the U.S. auto-industry import prices from 5 major trading partners for the period of 1998.01 to 2006.12. Nonstationary panel data estimation techniques and tests for cointegration are employed in this study. Secondly, this study aims to compare the ERPT for the motor vehicle products (final goods) to the ERPT for the auto-parts (intermediate goods) in the U.S. The results suggest that import prices do not respond proportionately to the exchange rates and the estimated pass-through elasticities for motor vehicle products are lower than that for auto-parts.
Exchange Rate Pass-Through to Export Prices: Assessing Some Cross-Country Evidence
