Search Results
Report
Pass-through of exchange rates to consumption prices: what has changed and why
In this paper, we use cross-country and time-series evidence to argue that retail price sensitivity to exchange rates may have increased over the past decade. This finding applies to traded goods as well as to non-traded goods. We highlight three reasons for the change in pass-through into the retail prices of goods. First, pass-through may have declined at the level of import prices, but the evidence is mixed over types of goods and countries. Second, there has been a large expansion of imported input use across sectors, meaning that the costs of imported goods as well as home-tradable goods ...
Working Paper
\"It's Not You, It's Me\" : Breakups in U.S.-China Trade Relationships
Costs to switching suppliers can affect prices by discouraging buyer movements from high to low cost sellers. This paper uses confidential U.S. Customs data on U.S. importers and their Chinese exporters to investigate these costs. I find considerable barriers to supply chain adjustments: 45% of arm?s-length importers keep their partner, and one-third of switching importers remain in the same city. Guided by these regularities, I propose and structurally estimate a dynamic discrete exporter choice model. Cost estimates are large and heterogeneous across products. These costs matter for trade ...
Discussion Paper
Pass-Through of Wages and Import Prices Has Increased in the Post-COVID Period
Annual CPI inflation reached 9.1 percent in June 2022, the highest reading since November 1981. The broad-based nature of the recent inflation readings has increased concerns that inflation may run above the Federal Reserve’s target for a longer period than anticipated. In this post we use detailed industry-level data to examine two prominent cost-push-based explanations for high inflation: rising import prices and higher labor costs. We find that the pass-through of wages and input prices to the U.S. Producer Price Index has grown during the pandemic. Both the large changes in these costs ...
Working Paper
Import Source Reallocation and Aggregate Price Dynamics in the United States
This paper studies the impact of changes in the composition of U.S. import sources on aggregate import prices and their implications for consumer prices. We decompose import price changes into within-source price adjustments and changes in sourcing composition. Using bilateral import data, we find that sourcing from lower-cost suppliers, particularly China, put sustained downward pressure on aggregate import prices until the mid-2010s. Since then, shifts away from China have partially reversed this effect, raising both import and consumer prices. We also find sourcing reallocation responds ...
Discussion Paper
High Import Prices along the Global Supply Chain Feed Through to U.S. Domestic Prices
The prices of U.S. imported goods, excluding fuel, have increased by 6 percent since the onset of the COVID-19 pandemic in February 2020. Around half of this increase is due to the substantial rise in the prices of imported industrial supplies, up nearly 30 percent. In this post, we consider the implications of the increase in import prices on U.S. industry inflation rates. In particular, we highlight how rising prices of imported intermediate inputs, like industrial supplies, can have amplified effects through the U.S. economy by increasing the production cost of goods that rely heavily on ...
Working Paper
What Imports to Import Prices?
This study offers new insights into exchange rate pass-through (ERPT) using U.S. import price indexes by country-of-origin, covering two decades of monthly data. Focusing on the largest U.S. trading partners, our analysis shows that ERPT is more muted than previously estimated, with freight costs having no measurable impact on import prices and foreign production costs exerting only limited influence. We also observe significant heterogeneity in countries’ short-run responses, shaped by differences in trade composition and pricing strategies. Consistent estimates across common dynamic panel ...
Report
The Impact of Tariffs on Inflation
This brief introduces a new methodology that quantifies how price increases at the border transmit to US consumers. The methodology allows the authors to determine the share of US consumption that would be subject to such increases and to break them down into different country and industry sources. Among other applications, the methodology enables the authors to compute the effects of various tariff plans on consumer price inflation, as tariffs effectively increase the border prices of imported goods.
Working Paper
Missing Import Price Changes and Low Exchange Rate Pass-Through
A large body of empirical work has found that exchange rate movements have only modest effects on inflation. However, the response of an import price index to exchange rate movements may be underestimated because some import price changes are missed when constructing the index. We investigate downward biases that arise when items experiencing a price change are especially likely to exit or to enter the index. We show that, in theoretical pricing models, entry and exit have different implications for the timing and size of these biases. Using Bureau of Labor Statistics (BLS) microdata, we ...
How Changes in Trade Partners Have Affected U.S. Import Prices
Expansion of sourcing from China in the 2000s helped contain U.S. import price growth. More recent shifts away from China have begun reversing that effect.
Discussion Paper
What Tracks Commodity Prices?
Various news reports have asserted that the slowdown in China was a key factor driving down commodity prices in 2015. It is true that China’s growth eased last year and, owing to its manufacturing-intensive economy, that slackening could reasonably have had repercussions for commodity prices. Still, growth in Japan and Europe accelerated in 2015, with the net result that global growth was fairly steady last year, casting doubt on the China slowdown explanation. An alternative story relies on the strong correlation between the dollar and commodity prices over time. A simple regression shows ...