Exchange rate pass-through and its determinants in Canadian manufacturing industries

In this paper the pass-through of exchange rate changes into the real prices of domestically produced and imported goods in Canadian manufacturing industries is examined through industry estimates of the pass-through elasticities and a cross-section analysis of their determinants. We find that the domestic pass-through elasticity increases with the effect of the exchange rate on domestic costs of production, the export share, the elasticity of substitution between imports and domestic goods, and the domestic advertising intensity. The import elasticity increases with the elasticity of substitution and the rate of price protection and decreases with advertising intensity.