(pp.053-060) T. Brahmasrene and J. Huang ‘Pricing to pass-through under volatile exchange rate scenario in the U.S. manufacturing’, WJEMSD, Vol. 6, Nos. 1/2, 2010
Abstract: A plethora of studies suggest 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 the 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