An official website of the United States government
United States Department of Labor
United States Department of Labor
The .gov means it's official.
Federal government websites often end in .gov or .mil. Before sharing sensitive information,
make sure you're on a federal government site.
The site is secure.
The
https:// ensures that you are connecting to the official website and that any
information you provide is encrypted and transmitted securely.
Office of Survey Methods Research
SHARE ON:
More Information
Published Year: 2013
Survey/Program(s): Office of Prices and Living Conditions
Catalog: Economic Working Paper
WP Number: WP-467
Publication Status / Disposition: Office of Prices and Living Conditions(August 2013).
Download PDF
International Trade Price Stickiness and Exchange Rate Pass‐through in Micro Data: A Case Study on US‐China Trade
Abstract
The interaction between the exchange rate regime, trade firms' price-setting behavior, and exchange rate pass-through (ERPT) is an important topic in international economics. This paper studies this using a goods-level dataset of US-China trade prices collected by the US Bureau of Labor Statistics. We document that the duration of US-China trade prices has declined almost 30% since China abandoned its hard peg to the US dollar in June 2005. A benchmark menu cost model that is calibrated to the data can replicate the documented decrease in price stickiness. We also estimate ERPT of RMB appreciation into US import prices between 2005 and 2008. Goods-level data allows us to estimate that the lifelong ERPT is close to one for goods that have at least one price change, but less than one-half when all goods are included. This finding can be attributed to the fact that around 40% of the goods in never experience a price change, and supports the hypothesis that price changes that take the form of product replacements may bias ERPT estimates downwards.