Year: 2009
Type: report
Abstract: The microdata underlying U.S. import and export price indexes exhibit frequent product turnover and highly rigid prices.As a consequence, 40% of products are replaced before a single price change is observed and 70% are replaced after two price changes or less.An aggregate price index that focuses on price changes for identical items over time may, therefore, miss an important component of price adjustment occuring at the time of product replacements.We provide a model of this "product replacement bias" and quantity its importance using U.S. microdata on improt and export prices.We show that, accounting for product replacement bias, long-run exchange rate "pass-through" into U.S. import and export price indexes is almost twice as high as conventional estimates suggest, and changes in the terms of trade are roughly 75% more volatile.Our adjustment makes pass-through statistics easier to account for with existing general equilibrium models.
DOI: 10.3386/w15359
Authors: Emi Nakamura, Jón Steinsson
Institutions: National Bureau of Economic Research, Columbia University
Language: English
Topic: Global trade and economics
Domain: Social Sciences
Open Access status: green
Funder: National Science Foundation
OpenAlex ID: W3125057656