Distribution Margins, Imported Inputs, and the Sensitivity of the CPI to Exchange Rates

Border prices of traded goods are highly sensitive to exchange rates, but the CPI, and the retail prices of these goods, are more stable. Our paper decomposes the sources of this stability for twenty-one OECD countries, focusing on the important roles of distribution margins and imported inputs in transmitting exchange rate fluctuations into consumption prices. We provide rich cross-country and cross-industry details on distribution margins and their sensitivity to exchange rates, imported inputs used in different categories of consumption goods, and weights in consumption of nontradables, home tradables and imported goods. While distribution margins damp the sensitivity of consumption prices of tradable goods to exchange rates, they also lead to enhanced pass through when nontraded goods prices are sensitive to exchange rates. Such price sensitivity arises because imported inputs are used in production of home nontradables. Calibration exercises show that, at under 5 percent, the United States has the lowest expected CPI sensitivity to exchange rates of all countries examined. On average, calibrated exchange rate pass through into CPIs is expected to be closer to 15 percent.

Differences in exchange rate pass-through in the euro area

Este trabajo se centra en la transmision (pass-through) de los movimientos del tipo de cambio a los precios de las importaciones realizadas por los paises del area del euro y procedentes de fuera de la misma. Haciendo uso de datos de indices de valor unitario para trece categorias distintas de productos para cada pais, se estiman tasas de pass-through especificas para cada industria para los distintos paises miembros de la Union Economica y Monetaria (UEM). A corto plazo, las tasas de pass-through difieren entre industrias y paises, y son menores que uno. A largo plazo, no se puede rechazar ni que el pass-through sea completo ni que sea el mismo para todas las industrias y paises. Sin embargo, existen diferencias entre los paises del area del euro en cuanto al grado de transmision de una variacion dada del tipo de cambio a los indices de precios de consumo y a los costes de produccion. (ad

Has the pass-through of movements in the euro exchange rate into import prices changed since the start of EMU?

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Exchange-Rate Pass-Through to Import Prices in the Euro Area

This paper presents an empirical analysis of transmission rates from exchange rate movements to import prices, across countries and product categories, in the euro area over the last fifteen years. Our results show that the transmission of exchange rate changes to import prices in the short run is high, although incomplete, and that it differs across industries and countries; in the long run, exchange rate pass-through is higher and close to one. We find no strong statistical evidence that the introduction of the euro caused a structural change in this transmission. Although estimated point elasticities seem to have declined since the introduction of the euro, we find little evidence of a structural break in the transmission of exchange rate movements except in the case of some manufacturing industries. And since the euro was introduced, industries producing differentiated goods have been more likely to experience reduced rates of exchange rate pass-through to import prices. Exchange rate changes continue to lead to large changes in import prices across euro-area countries.

Explaining the Diversification Discount

Diversified firms trade at a discount relatively to similar single-segment firms. We argue in this paper that this observed discount is not per se evidence that diversification destroys value. Firms choose to diversify. Firm characteristics, which make firms diversify, might also cause them to be discounted. Not taking into account these firm characteristics might wrongly attribute the observed discount to diversification. Data from the Compustat Industry Segment File from 1978 to 1996 is used to select a sample of single segment and diversifying firms. We use three alternative econometric techniques to control for the endogeneity of the diversification decision. All three methods suggest the presence of self-selection in the decision to diversify and that a negative correlation exists between firm's choice to diversify and firm value. We do a similar analysis in a sample of refocusing firms. Again, some evidence of self-selection by firms exists and we now find a positive correlation between firm's choice to refocus and firm value. These results consistently suggest the importance of taking the endogeneity of the diversification status into account in analyzing its effect on firm value

Employment versus Wage Adjustment and the U.S. Dollar

Using two decades of annual data, we explore the links between real exchange rates and employment, wages and overtime activity in specific U.S. manufacturing industries. Across two-digit industry levels of aggregation, exchange rate movements do not have large effects on numbers of jobs or on hours worked. More substantial effects are picked up in industry wages, especially for industries characterized by low price-over-cost markup ratios, and in overtime wages and overtime employment. The industry-by-industry pattern of wage responsiveness is not strongly related to industry export orientation or changes in overall external orientation. Industries with low price overcost markups and those with a less skilled workforce exhibit relatively larger employment elasticities but lower wage elasticities

Exchange rate pass-through to import prices in the euro area

This paper presents an empirical analysis of transmission rates from exchange rate movements to import prices, across countries and product categories, in the euro area over the last fifteen years. Our results show that the transmission of exchange rate changes to import prices in the short run is high, although incomplete, and that it differs across industries and countries; in the long run, exchange rate pass through is higher and close to one. We find no strong statistical evidence that the introduction of the euro caused a structural change in this transmission. Although estimated point elasticities seem to have declined since the introduction of the euro, we find little evidence of a structural break in the transmission of exchange rate movements except in the case of some manufacturing industries. And since the euro was introduced, industries producing differentiated goods have been more likely to experience reduced rates of exchange rate pass through to import prices. Exchange rate changes continue to lead to large changes in import prices across euro area countries

Non-linear adjustment of import prices in the European Union

This paper focuses on the non linear adjustment of import prices in national currency to shocks in exchange rates and foreign prices measured in the exporters' currency of products originating outside the euro area and imported into European Union countries (EU 15). The paper looks at three different types of non linearities: (a) non proportional adjustment (the size of the adjustment grows more than proportionally with the size of the misalignments), (b) asymmetric adjustment to cost increasing and cost decreasing shocks, and (c) the existence of thresholds in the size of misalignments below which no adjustment takes place. There is evidence of more than proportional adjustment towards long run equilibrium in manufacturing industries. In these industries, the adjustment is faster the further away current import prices are from their implied long run equilibrium. In contrast, a proportional linear adjustment cannot be rejected for some other imports (especially within agricultural and commodity imports). There is also strong evidence of asymmetry in the adjustment to long run equilibrium. Deviations from long run equilibrium due to exchange rate appreciations of the home currency result in a faster adjustment than those caused by a home currency depreciation. Finally, we also find that adjustment takes place in the industries in our sample only when deviations are above certain thresholds, and that these thresholds tend to be somewhat smaller for manufacturing industries than for commoditie