An Examination of Exchange Rate Pass-Through to U.S. Motor Vehicle Products and Auto-Parts Import Prices

A distinctive feature of present globalization is the development of international production sharing activities, i.e. production fragmentation. The recent developments in transportation and communication technologies led to a surge in intermediate goods trade. However, intermediate goods trade is often neglected in the empirical studies of the exchange rate pass-through (ERPT). Using import unit values of 79 motor vehicle products and 245 auto-part, which are classified by the 10-digit level of Harmonized Tariff Schedule (HTS), this study examines the pass-through of exchange rate changes from 5 major trading partners for the period of 1998.01 to 2006.12 by using panel data cointegration techniques. Secondly, this study aims to compare the ERPT for the motor vehicle products (final goods) to the ERPT for the auto-parts (intermediate goods) in the U.S. The results suggest that import prices do not respond proportionately to the exchange rates and the degree of estimated pass through into import prices differs for motor vehicle products and auto parts.This paper was presented at the 18th International Conference of the International Trade and Finance Association, May 22, 2008, meeting at Universidade Nova de Lisboa, Lisbon, Portugal.