Justin Ho of Marketplace The impact of the bill was discussed Import and export price release Thursday. My view is that the pass-through to import prices is small in the short term and not very large even in the long term, while the pass-through to the broader price index is unlikely to be large. Not sure I'm the only one with this opinion, but here's what I think.
figure 1: Import prices excluding fuel (blue), nominal trade-weighted dollar exchange rate (up is depreciation) (tan), both logarithmic, 2020M02=0. NBER-defined recession peak-to-trough dates appear gray. Sources: Bureau of Labor Statistics, Federal Reserve Board, FRED, NBER, and author's calculations.
These variables are defined such that one would expect the two variables to co-vary positively. In fact, there aren't many clear correlations at the (logarithmic) level. Since both series are non-stationary, it makes sense to estimate logarithmic first differences. Sampling end-of-quarter data and estimating the regression from Q1 2002 to Q4 2023 (with four exchange rate lags), the resulting long-term pass-through coefficient is about 0.3 (ignoring any other factors such as domestic slack and export measures) national cost). The adjusted R2 is 0.41. Note that, as in previous studies, the estimated pass-through is much less than unity, which makes sense given that most imports are priced in U.S. dollars.
figure 2: First log import price difference (excluding fuel) (blue), nominal trade-weighted dollar exchange rate (upward is depreciation) (tan). NBER-defined recession peak-to-trough dates appear gray. Sources: Bureau of Labor Statistics, Federal Reserve Board, FRED, NBER, and author's calculations.
For comparison, Bussier, Draghiai and Peltonen (2014) The long-run transmission rate for the United States between 1990 and 2011 is estimated to be approximately 0.35.Discussed the results of the early 2006 Federal Reserve investigation here.
What about the broader index? For the PPI of tradable industries, it is expected to be about 0.3 in 2013-20 Amity et al. (2022)but it is 0.7 in 2021, showing that the pandemic era exhibits different behavior.
What is the impact on the broader index? Matchik and Satya Raju (2022) The impact of dollar appreciation/depreciation on personal consumption expenditure inflation is believed to be minimal. It is pointed out that only about 10% of the core consumption basket involves imported goods. (It’s another story when oil prices rise in dollar terms.)
have to be aware of is. In the above literature, exchange rates are largely considered exogenous, which is not entirely implausible given the large element of unpredictability in nominal exchange rates.Having said that, as Forbes, Hjortsoe and Nenova (2018) and Ha, Stock and Yilmazkudi (2020) Point out that the type of shock (demand, money, supply) also matters. For developed economies, Ha et al. The average exchange rate passed to CPI is found to be about 0.10.
