Exchange Rates and Import Prices in the United States: A Varying-Parameter Estimation of Exchange-Rate Pass-Through

Abstract

This article estimates the import-price function in the United States using a varying-parameter model. The results show that the short-run nonoil import-price changes have become relatively less responsive to exchange-rate changes than to foreign-cost changes since the generalized floating began in the early 1970s. Concomitantly, the markup has varied significantly, falling when the dollar fell and rising when it rose. Thus “pricing to market” is confirmed even for overall U.S. imports.

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