Pricing to pass-through under volatile exchange rate scenario in the U.S. manufacturing
Tantatape Brahmasrene, Purdue University North Central, USA
Jui-Chi Huang, Pennsylvania State University, USA
Abstract: A plethora of studies suggests the pricing decisions depend on product substitutability, costs, market structures, and the magnitude of exchange rate uncertainty in the international setting. Taking a departure from existing literature, this paper examines the average degree of exchange rate pass-through to the prices of export product under low to high exchange rate volatility. A panel data estimation method is performed using the annual U.S. export data to 69 export destinations across 111 four-digit Standard Industrial Classification (SIC) industries. An average zero or insignificant pass-through estimate for all industries in the high exchange-rate-fluctuation sub-sample confirms the hypothesis. In this period of high exchange risk, the possible high hedging engagements disconnect the relationship between exchange rate movements and export pricing.
Keywords: pass-through; foreign exchange volatility; international pricing