Front Matter Page Research Department Contents 1 Introduction 2 Conceptual framework 3 Data 4 Bilateral pass-through, terms of trade, and the dollar 4.1 Exchange rate pass-through into prices 4.2 Terms of trade and exchange rates 4.3 Trade volume elasticity 4.4 Effects of U.S. monetary policy shocks 4.5 The dollar versus the euro 5 Determinants of pass-through heterogeneity 5.1 Bayesian model of pass-through heterogeneity 5.2 Results: price pass-through 5.3 Results: trade elasticity 6 Aggregate implications of
in Regimpact Indicator, and Categories Upon Which They are Scored 9. Cumulative Effect of Quality Scope on Pass-Through 10. Share of Intermediate Demand in Gross Output of Non-Manufacturing Sectors 11. Heterogeneity in Announcement Effects TABLES 1. Estimates of Pass-Through Heterogeneity 2. Estimates of Pass-Through Heterogeneity, Including Quality Range 3. Impact of Early Announcement on Pass-Through APPENDIX TABLES 1. Summary of VAT Reforms by Country 2. Summary of Observed VAT Rates and Prices 3. Pairwise Correlation Between
specification by interacting VAT reforms with measures of competition and scope for quality. We also examine the role of different varieties of VAT reform (e.g. reforms announced well in advance vs. surprise reforms, or tax hikes vs. tax cuts) in explaining some of the pass-through heterogeneity. Firstly, we find that changes in regulation in supplier markets play a substantial role, with a one standard deviation rise in the competition-friendliness of regulation (roughly equal to the difference between Austria and relatively uncompetitive Italy in 2013) increasing pass
the cross-dyad heterogeneity in pass-through coefficients is well explained by the propensity to invoice imports in dollars. We use the importer’s country-level dollar invoicing share from Gopinath (2015) as a proxy for the invoicing share of bilateral imports. 1 Standard panel regressions with interactions show that increasing the dollar invoicing share by 10 percentage points causes the contemporaneous dollar price pass-through to increase by 2.0−3.5 percentage points. Using a flexible hierarchical Bayesian framework to directly model pass-through heterogeneity
problematic to the extent that the characteristics we employ do not fully explain pass-through heterogeneity across countries. In addition to testing potential determinants of pass-through individually, we also include multiple characteristics in the model at the same time. This approach allows disentangling the correlations between the various potential determinants of transmission and identifying those that remain significant when included alongside others. Finally, we use panel VAR specifications with all relevant country characteristics to decompose pass