Is exchange rate pass-through symmetric? Evidence from US imports

Abstract

This study addresses the question of whether exchange rate pass-through into the import price is symmetric between appreciation and depreciation of the home currency. The dramatic increase of the dollar in the early 1980s and the subsequent decline provided a necessary setting for testing whether there was a structural change in the exchange rate pass-through. Examining import price data for 98 disaggregated SIC industries in the US manufacturing sector and the US import price for all commodities, mixed evidence is found regarding the stability of exchange rate pass-through.

Acknowledgements

I would like to thank Paolo A. Pesenti (Federal Reserve Bank of New York) and Danny Leung (Bank of Canada) and seminar participants at the 2003 American Economic Association annual meetings for their constructive comments. I also thank Min-Chan Pyo for helpful discussions.

Notes

¹ A noticeable exception is Coughlin and Pollard (2000) who addressed this issue along with exchange rate index choice. See Mahdavi (2002) for some evidence of opposite ‘opportunistic’ pricing behaviour for exporters in the US furniture industry.

² It is assumed that there is no tariff or transaction cost. Relaxing these assumptions will not qualitatively change the results of the model.

³ The SIC-based import price series end in 1992 as the BLS stopped publishing these series.