Please use this identifier to cite or link to this item:
Campa, José Manuel
Goldberg, Linda S.
Year of Publication: 
Series/Report no.: 
Staff Report, Federal Reserve Bank of New York 247
Border prices of traded goods are highly sensitive to exchange rates; however, the consumer price index (CPI) and the retail prices of goods that make up the CPI are more stable. This paper decomposes the sources of this price stability for twenty-one OECD (Organisation for Economic Co-operation and Development) countries, focusing on the important role 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 the 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 the prices of nontraded goods are sensitive to exchange rates. Such price sensitivity arises because imported inputs are used in the production of home nontradables. Calibration exercises show that, of all countries examined, the United States has the lowest expected CPI sensitivity to exchange rates—at less than 5 percent. On average, the calibrated exchange rate pass-through into CPI is expected to be closer to 15 percent.
pass through, exchange rate, price, imported input, consumer price
Document Type: 
Working Paper

Files in This Item:
282.27 kB

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.