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Non-linearities, asymmetries and dollar currency pricing in exchange rate pass-through: evidence from the sectoral level

Author

Listed:
  • Hjortsoe, Ida

    (Bank of England)

  • Lewis, John

    (Bank of England)

Abstract
We investigate pass-through of exchange rate changes into UK import prices for 55 sectors using sector-specific exchange rate indices. Estimating a separate error correction model for each sector, we document substantial sectoral variation in pass-through, but find that compositional effects have not generated much variation in aggregate pass-through over time. Aggregating our sectoral results, we find that 74% of exchange rate changes are passed through to aggregate import prices in the long run. Pass-through is faster for larger exchange rate changes than smaller ones; and for movements driven by the US dollar than for broader based exchange rate changes. This greater sensitivity to the dollar exchange rate changes suggests the US dollar is used as a vehicle currency for invoicing some imports from non-US countries. We find no evidence of a comparable role for the euro nor for asymmetries in pass-through at the aggregate level.

Suggested Citation

  • Hjortsoe, Ida & Lewis, John, 2020. "Non-linearities, asymmetries and dollar currency pricing in exchange rate pass-through: evidence from the sectoral level," Bank of England working papers 868, Bank of England.
    • Handle: RePEc:boe:boeewp:0868
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    References listed on IDEAS

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    More about this item

    Keywords

    Exchange rate pass-through; import prices; vehicle currencies; non-linearities;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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