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

Abstract

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.

Exchange Rate Pass‐through Into Retail Prices

“…Indeed, our benchmark retailer pass‐through estimate of 20% is generally lower than the above values . Studies that look at consumer price indices for a selection of developed countries obtain pass‐through estimates in the range of 0% to 17%, depending on the sample and specification considered, and in most cases statistically insignificant (e.g., Ihrig et al., ; Goldberg and Campa, ). These estimates of pass‐through into consumer prices tend to be lower than those obtained here.…”

Pass‐Through of Exchange Rates and Competition between Floaters and Fixers

“…1 1 Ihrig et al (2006) document a fall in pass‐through in other G7 countries, and Marazzi et al (2005) for Japan and less strongly for Germany. Campa and Goldberg (2005) find that the decline in pass‐through is significant in only 4 of the 23 OECD countries they study, and in particular for the United States they do not find a significant decline.…”

Is the Exchange Rate Pass-Through into Import Prices Declining? Evidence from Chile

“…Notes 1. Bouakez and Rebei (2005); Goldberg and Knetter (1997); Irigh et al (2006);McCarthy (2006); Mumtaz et al (2006); Otani and Shirota (2005); Otani et al (2003); and Taylor (2000).…”