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Betts & Devereux (1996)
Campa & Goldberg (2006)
increased (columns 3, 4). Finally, allowing for substitution out of some imported inputs
(columns 5, 6) directly reduces pass through into nontraded goods prices and home tradables
prices, and has an additional indirect downward effect on pass through of home tradables and
imported goods by reducing transmission of exchange rates through distribution sector costs.
Table: U.S. Exchange Rate Pass-Through Elasticities, under alternative
assumptions
Table 9 U.S. Exchange Rate Pass-Through Elasticities, under alternative assumptions
assumptions (1) (2) (3) (4) (5) (6) (7)
θ 4 4.00 4.00 4.00 4.00 4.00 4.00
µ
η
µ
= η 0 0.00 0.00 0.00 -0.10 -0.10 -0.10
e ( n), ( h),
e
mh ( ), e
η 0 0.00 0.10 0.10 0.00 0.10 0.10
m ( ),
η 0 -0.50 0.00 -0.50 -0.50 0.00 -0.50
e
ew*/zf 1 1.00 1.00 1.00 1 1.00 1.00
results
p( n),
e
η 0.040 0.040 0.040 0.040 0.036 0.036 0.036
p( h),
e
η 0.156 0.156 0.213 0.213 0.141 0.198 0.198
p ( f ), e
η 0.453 0.168 0.453 0.168 0.165 0.450 0.165
cpi,
e
η 0.084 0.070 0.095 0.081 0.063 0.089 0.075
As a final exercise, we bring all of these findings together to inform the question of what
exchange rate pass through into CPIs is expected, given the features of each economy observed
in the data and assumed in the calibration exercises. The first relevant set of data are the degrees
to which different price elasticities feed into CPI sensitivity to exchange rates, based on the
shares of each type of good in the index (see equation 10). These CPI weights are computed and
presented in the first three data columns of Table 10. Clearly, nontraded goods have the largest
Isabelle Méjean Lecture 5