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Exchange rates and import prices in Finland: estimation of exchange rate pass-through

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  • Kuismanen, Mika

Abstract

The purpose of this study is to examine the relationship between import prices and exchange rates in Finland.The concept of pass-through is associated with how prices of internationally traded goods are affected by changes in exchange rates. Pass-through is said to be complete when the exporter of the good does not adjust prices in his home currency.This means that exchange rate fluctuations are totally reflected in local import prices abroad.On the contrary, if import prices in local currencies remain stable, it is the prices received by exporters that must adjust to exchange rate movements.This paper presents a simple static theoretical model for pass-through.After that, some estimation results for Finnish import prices are shown.Estimation results are mixed, but it is evident that depreciation of markka increases import prices.

Suggested Citation

  • Kuismanen, Mika, 1995. "Exchange rates and import prices in Finland: estimation of exchange rate pass-through," Bank of Finland Research Discussion Papers 17/1995, Bank of Finland.
    • Handle: RePEc:zbw:bofrdp:rdp1995_017
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    1. Giovannini, Alberto, 1988. "Exchange rates and traded goods prices," Journal of International Economics, Elsevier, vol. 24(1-2), pages 45-68, February.
    2. Feenstra, Robert C., 1989. "Symmetric pass-through of tariffs and exchange rates under imperfect competition: An empirical test," Journal of International Economics, Elsevier, vol. 27(1-2), pages 25-45, August.
    3. Morris Goldstein & Mohsin S. Khan, 2017. "Income and Price Effects in Foreign Trade," World Scientific Book Chapters, in: TRADE CURRENCIES AND FINANCE, chapter 1, pages 3-81, World Scientific Publishing Co. Pte. Ltd..
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    5. Dornbusch, Rudiger, 1987. "Exchange Rates and Prices," American Economic Review, American Economic Association, vol. 77(1), pages 93-106, March.
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    7. Spanos,Aris, 1986. "Statistical Foundations of Econometric Modelling," Cambridge Books, Cambridge University Press, number 9780521269124, September.
    8. Catherine L. Mann, 1986. "Prices, profit margins, and exchange rates," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jun, pages 366-379.
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    Cited by:

    1. Ketelsen, Uwe & Kortelainen, Mika, 1996. "The pass-through of exchange rate changes to import prices," Bank of Finland Research Discussion Papers 26/1996, Bank of Finland.

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