CEPII, Recherche et Expertise sur l'economie mondiale
On the seemingly incompleteness of exchange rate pass-through to import prices: Do globalization and/or regional trade matter?


Antonia Lopez-Villavicencio
Valérie Mignon

 Highlights :
  • We do not find compelling evidence that global factors cause a structural change in the degree of exchange rate pass-through (ERPT).
  • Regionalization, defined as a higher proportion of intra-EU imports' share in total imports, reduces the passthrough in a more generalized way.
  • ERPT incompleteness generally observed in the literature is in appearance only and not at play when intra- EU trade is controlled for.
  • ERPT is complete and significant in numerous sectors, meaning that exchange rate changes still exert important pressure on domestic prices.

 Abstract :
This paper assesses the impact of globalization on exchange rate pass-through (ERPT) into import prices in three core eurozone countries. To this end, we consider various indicators of globalization and rely on both aggregated (i.e., country level) and disaggregated (i.e., good level) data. Using quarterly data since 1992, we do not find compelling evidence that global factors cause a structural change in the degree of exchange rate pass-through. Indeed, increased trade openness or lower trade tariffs push up ERPT in some sectors, though results are quite sparse. However, regionalization, defined as a higher proportion of intra-EU imports' share in total imports, reduces the pass-through in a more generalized way. Most importantly, we show that ERPT incompleteness generally observed in the literature is in appearance only and not at play when intra-EU trade is controlled for. Overall, our findings show that ERPT is complete and significant in numerous sectors, meaning that exchange rate changes still exert important pressure on domestic prices.

 Keywords : Exchange rate pass-through | Import prices | Globalization | Eurozone

 JEL : E31, F31, F4, C22
CEPII Working Paper
N°2017-08, June 2017

Texte intégral

Référence
BibTeX (with abstract),
plain text (with abstract),
RIS (with abstract)

Contact: 
Retour