A note on transfer prices and exchange rate pass-through

Hegji, Charles E.

doi:10.1007/bf02761573

Cited by 7 publications

(5 citation statements)

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“…Apart from producers' strategic behavior, other factors giving rise to incomplete ERPT include trade distortions, transportation and distribution costs (Burstein et al, 2003), crossborder production by multinational companies (Aksoy and Riyanto, 2000;Hegji, 2003), and the use of currency hedging (Mann, 1986).…”

Section: Literature Reviewmentioning

confidence: 99%

Exchange Rate Pass‐through in China

Shu¹,

Su²

2009

China and World Economy

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During the second half of 2007 and early part of 2008 when there were intense inflationary pressures in China, RMB appreciation was advocated as a means of helping to curb inflation. The effectiveness of appreciation in controlling inflation depends on the impact of exchange rate movements on import and domestic prices. Our analysis finds fairly large and speedy exchange rate pass-through (ERPT) to import prices: 50 and 60 percent for the short run and long run, respectively. However, the degree of ERPT decreases along the price chain from upstream to downstream prices. ERPT for consumer prices, the most downstream prices, is much milder and has substantial lags. A 10-percent rise in the nominal effective exchange rate will dampen consumer prices by 1.1 percent within a year, with very little pass-through in the first half year, and by 2.0 percent over the long run. These findings, particularly the ERPT to consumer prices, suggest that RMB appreciation can help to reduce inflationary pressures over the longer term. However, it is unlikely to provide rapid relief to the current round of high inflation because of the long lags in ERPT. The RMB needs to strengthen in effective terms to exert the desired dampening impact on prices. Copyright (c) 2009 Hong Kong Monetary Authority Journal compilation (c) 2009 Institute of World Economics and Politics, Chinese Academy of Social Sciences.

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Section: Literature Reviewmentioning

confidence: 99%

Exchange Rate Pass‐through in China

Shu¹,

Su²

2009

China and World Economy

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“…This can explain incomplete pass-through as long as all of these currencies do not experience a common appreciation against the export destination's currency. For instance, Aksoy and Riyanto (2000) and Hegji (2003) build theoretical models where the increased use of cross-border production within the same firm may have lead to lower pass-through. Also, along this vein, Bodnar, Dumas, and Marston (2002) show pass-through can be less than one if part of the costs of production are incurred in a different currency (i.e.…”

Section: Review Of the Literaturementioning

confidence: 99%

Exchange-Rate Pass-Through in the G-7 Countries

Ihrig

Marazzi

Rothenberg³

2006

internationalfinance

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This paper examines the current thinking on exchange-rate pass-through to both import prices and consumer prices and estimates the extent to which they have fallen in the G-7 countries since the late 1970s and 1980s. For import-price pass-through we find that all countries experience a numerical decline in the responsiveness of import prices to exchange-rate movements; for nearly half of these countries the decline between 1975-1989 and 1990-2004 is statistically significant. We estimate that while a 10 percent depreciation in the local currency would have increased import prices by nearly 7 percent on average across these countries in the late 1970s and 1980s, it would have only increased import prices by 4 percent in the last 15 years. The responsiveness of consumer prices to exchange-rate movements declines for nearly every country, with the decline being statistically significant for two countries. Specifically, while a 10 percent depreciation in the local currency would have increased consumer prices by almost 2 percent on average in the late 1970s and 1980s, it would have had a neutral effect on consumer prices in the last 15 years.

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“…If production occurs in several stages in a number of different countries, then the final good embodies costs in various currencies that may not all move together, resulting in lower pass-through (Bodnar, Dumas, and Marston, 2002;Hegji, 2003).…”

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confidence: 99%

Exchange Rate Pass-Through And Monetary Policy

Mishkin

2008

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A note on transfer prices and exchange rate pass-through

Cited by 7 publications

References 10 publications

Exchange Rate Pass‐through in China

Exchange Rate Pass‐through in China

Exchange-Rate Pass-Through in the G-7 Countries

Exchange Rate Pass-Through And Monetary Policy

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