The decline in exchange rate pass-through : ǂb a search for explanations in micro-level data
Date
2019
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Publisher
University of Delaware
Abstract
The pass-through of exchange rate changes into domestic prices has been declining since the 1990s. Researchers have attributed this decline to multiple reasons, such as inflation targeting, adoption of local currency pricing, and market dominance by a few firms. However, major changes in production sharing have also occurred across countries during this period. The globalization of the value-added chain also affects the exchange rate pass-through. This paper investigates these competing explanations. It differs from previous empirical work in its use of disaggregated value-added data from the World Input-Output Database. Evidence from a panel data set of 10 importers, 12 exporters, and 3,407 manufactured goods over the period from 2000 to 2014 supports the hypothesis that the evolution of the global value-chain is largely responsible for the decline in observed exchange rate pass-through.