Exchange Rates and Import Prices in the United States: A Varying-Parameter Estimation of Exchange-Rate Pass-Through

TheÂ study investigated the magnitude of exchange rate pass through to import prices and domestic pricesÂ Â Â (consumer price index) in WAMZ economy using quarterly time-series data between 2000 and 2010 with the aids of Vector autoregressive (VAR) modeling technique supported with Johansen co-integration approach cross country analysis comprising of Gambia, Ghana, Nigeria and Sierra-Leone. The study discovered that transmission of exchange rate to import prices is more when compared with consumer price in the zone while the contributions of exchange rate to import price are not less 13 percent at average in entire zone. Consumer price index was explained by exchange rate pass through with an average of 26 percent in the zone where the pass through to consumer price is less than two percent in Ghanaian economy. The Taylor (2000) hypothesis was observed in the study where Ghana and Nigeria are the outlier economies while Nigeria established a positive relationship between interest rate volatility and exchange rate pass through to import prices.

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Vehicle Currency Pricing and Exchange Rate Pass-Through

Journal of the European Economic Association ◽

10.1093/jeea/jvab025 ◽

2021 ◽

Author(s):

Natalie Chen ◽

Wanyu Chung ◽

Dennis Novy

Keyword(s):

Exchange Rate ◽

Exchange Rates ◽

Great Recession ◽

Firm Level ◽

Bilateral Exchange ◽

The Great Recession ◽

Pass Through ◽

Exchange Rate Changes ◽

Exchange Rate Pass Through ◽

The Relationship

Abstract Using detailed firm-level transactions data for UK imports, we find that invoicing in a vehicle currency is pervasive, with more than half of the transactions in our sample invoiced in neither sterling nor the exporter’s currency. We then study the relationship between invoicing currencies and the response of import unit values to exchange rate changes. We find that for transactions invoiced in a vehicle currency, import unit values are much more sensitive to changes in the vehicle currency than in the bilateral exchange rate. Pass-through therefore substantially increases once we account for vehicle currencies. This result helps to explain why UK inflation turned out higher than expected when sterling depreciated during the Great Recession and after the Brexit referendum. Finally, within a conceptual framework we show why bilateral exchange rates are not suitable for capturing exchange rate pass-through under vehicle currency pricing. Overall, our results help to clarify why the literature often finds a disconnect between exchange rates and prices when vehicle currencies are not accounted for.

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Conclusions

Currency Politics ◽

10.23943/princeton/9780691173849.003.0008 ◽

2016 ◽

Author(s):

Jeffry A. Frieden

Keyword(s):

Exchange Rate ◽

Exchange Rates ◽

Exchange Rate Policy ◽

Theoretical Argument ◽

Economic Agents ◽

Cross Border ◽

Domestic Prices ◽

Pass Through ◽

Exchange Rate Pass Through ◽

Export Competition

This chapter summarizes key findings. This book makes a simple theoretical argument about the distributional implications of exchange rate policy. It suggests that economic actors with important cross-border interests, exposed to currency volatility, will tend to prefer more stable and predictable exchange rates. It also claims that tradables producers will, all else being equal, tend to prefer a depreciated real exchange rate. These concerns will be tempered by the extent of exchange rate pass-through—that is, the degree to which currency movements affect domestic prices. The analysis in this book shows that countries whose economic agents are more involved in cross-border trade are more likely to fix their exchange rates in order to reduce currency volatility. Countries with large groups susceptible to import or export competition—import-competing manufacturers and export farmers—are more likely to choose flexible exchange rates that allow currency depreciations. Governments facing an election encourage or allow currency appreciation that increases the purchasing power of consumers.

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