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Exchange Rate Pass-Through, Domestic Competition, and Infl?ation: Evidence from the 2005/08 Revaluation of the Renminbi

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Abstract
Import competition from China is pervasive in the sense that for many good categories, the competitive environment that US fi?rms face in these markets is strongly driven by the prices of Chinese imports, and so is their pricing decision. This paper quanti?fies the effect of the government-controlled appreciation of the Chinese renminbi vis-à-vis the USD from 2005 to 2008 on the prices charged by US domestic producers. In a panel spanning the period from 1994 to 2010 and including up to 519 manufacturing sectors, import price changes of Chinese goods pass into US producer prices at an average rate of 0.7, while import price changes that can be traced back to exchange rate movements of other trade partners only have mild effects on US prices. Further analysis points to the importance of trade integration, variable markups, and demand complementarities on the one side, and to the importance of imported intermediate goods on the other side as drivers of these patterns. Simulations incorporating these microeconomic ?findings reveal that a substantial revaluation of the renminbi would result in a pronounced increase of aggregate US producer price infl?ation.

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  • Raphael A Auer, 2014. "Exchange Rate Pass-Through, Domestic Competition, and Infl?ation: Evidence from the 2005/08 Revaluation of the Renminbi," Working Papers 15.01, Swiss National Bank, Study Center Gerzensee.
    • Handle: RePEc:szg:worpap:1501
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    5. Auer, Raphael A. & Schoenle, Raphael S., 2016. "Market structure and exchange rate pass-through," Journal of International Economics, Elsevier, vol. 98(C), pages 60-77.
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    9. Mark A. Wynne, 2011. "Microeconomic Aspects of the Globalization of Inflation: A Joint Conference with the Swiss National Bank," Annual Report, Globalization and Monetary Policy Institute, Federal Reserve Bank of Dallas, pages 30-34.
    10. Raphael Schoenle & Raphael Auer, 2012. "Market Structure and Pass-Through," 2012 Meeting Papers 61, Society for Economic Dynamics.
    11. Matthieu Bussière & Guillaume Gaulier & Walter Steingress, 2020. "Global Trade Flows: Revisiting the Exchange Rate Elasticities," Open Economies Review, Springer, vol. 31(1), pages 25-78, February.
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    16. Stefania Garetto, 2014. "Firms’ Heterogeneity and Incomplete Pass-Through," Boston University - Department of Economics - Working Papers Series WP2014-006, Boston University - Department of Economics.
    17. Md Deluair Hossen, 2023. "Exchange Rate Pass-Through and Data Frequency: Firm-Level Evidence from Bangladesh," Papers 2303.04101, arXiv.org.
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    More about this item

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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