Exchange Rate Pass-Through in the Global Economy

This paper estimates export and import price equations for 40 countries – including 19 emerging market economies (EMEs) – and aims to understand heterogeneity across countries in the degree of exchange rate pass-through to import and to export prices. Results indicate that (i) the elasticities of trade prices are sizeable in EMEs, and higher on average than in advanced economies for export prices; (ii) such elasticities are primarily influenced by macroeconomic factors; (iii) export and import price elasticities tend to be strongly correlated across countries; (iv) lower exchange rate pass-through in the United States, compared to other advanced economies, can be related to the geographical distribution of U.S. imports, more heavily concentrated in countries with high elasticity of export prices. Overall, these results yield an enhanced understanding of exchange rate pass-through, emphasizing the role of external factors.