Exchange rate pass through

Exchange-rate pass-through (ERPT) is a measure of how responsive international prices are to changes in exchange rates.

Formally, exchange-rate pass-through is the elasticity of local-currency import prices with respect to the local-currency price of foreign currency, often measured as the percentage change, in the local currency, of import prices resulting from a one percent change in the exchange rate between the exporting and importing countries.[1] A change in import prices affects retail and consumer prices. When exchange-rate pass-through is greater, there is more transmission of inflation between countries.[2] Exchange-rate pass-through is also related to the law of one price and purchasing power parity.



Country Long-Run Exchange-Rate Pass-Through[2]
Australia 0.69
Canada 0.68
Switzerland 0.94
Czech Republic 0.61
Germany 0.79
Denmark 0.68
Spain 0.56
Finland 0.82
France 1.21
United Kingdom 0.47
Hungary 0.85
Ireland 1.37
Iceland 0.76
Italy 0.62
Japan 1.26
Netherlands 0.77
Norway 0.79
New Zealand 0.62
Poland 0.99
Portugal 0.88
Sweden 0.59
USA 0.41

Measurement of exchange-rate pass-through is typically performed using aggregate price indexes.[1] Some studies have examined how firms in different industries or with different production costs differ in their responses to exchange rates. Studies of firm-level differences explain why exchange-rate pass-through is not equal to one[4] and how globalization caused a decrease in exchange-rate pass-through.[5]


  1. ^ Jump up to:ab Goldberg, P.K.; Knetter, M.M. (1997). “Goods prices and exchange rates: What have we learned?”. Journal of Economic Literature. 35 (3): 1243–1272. doi:10.3386/w5862.
  2. ^ Jump up to:ab c Campa, J.M.; Goldberg, L.S. (2005). “Exchange Rate Pass-Through into Import Prices”. Review of Economics and Statistics. 87 (4): 679–690. doi:10.1162/003465305775098189. (2002 NBER Working Paper version, doi:10.3386/w8934)
  3. ^Gopinath, G.; Rigobon, R. (2008). “Sticky Borders”. Quarterly Journal of Economics. 123 (2): 531–575. doi:10.1162/qjec.2008.123.2.531.
  4. ^Berman, N.; Martin, P.; Mayer, T. (2012). “How do Different Exporters React to Exchange Rate Changes?”. Quarterly Journal of Economics. 127 (1): 437–492. doi:10.1093/qje/qjr057.
  5. ^Cook, J.A. (2014). “The Effect of Firm-Level Productivity on Exchange Rate Pass-Through”. Economics Letters. 122 (1): 27–30. doi:10.1016/j.econlet.2013.10.028.

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