Exchange Rate Pass-Through in the Global Economy: The Role of Emerging Market Economies

Abstract

This paper estimates export and import price equations for 40 countries—including 22 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. The results indicate that (i) export price elasticities are higher in EMEs than in advanced economies; (ii) trade elasticities are primarily influenced by macroeconomic factors; (iii) export and import price elasticities tend to be correlated across countries; (iv) lower exchange rate pass-through in the United States, compared with 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.