Geographical bilateral exchange rate pass-through in the United States
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From February 2002 to December 2007, the dollar depreciated 34.2% against other major currencies. During the same period, core consumer prices only increased 11.3%. One would think the consumer prices would be more responsive to changes in the exchange rate as globalized as the world is today. Most studies have measured the exchange rate passthrough (ERPT) into import prices which have been found to be more responsive than consumer prices. This paper has an alternative aim, one that has not been investigated in the past. The purpose of this paper is to estimate the ERPT from Canada to the four major regions of United Stated into the consumer prices (CPI) using a nominal bilateral exchange rate in order to see geographical differences of the ERPT domestically. This issue is important for both monetary and exchange rate policies and can give a more geographical insight in the ERPT. The results found are unexpected. Only a few categories of the CPI are found to be impacted by exchange rate changes in Northeast, Midwest and South. In the West, none of the CPI categories are significantly impacted. Furthermore, the South region experiences ERPt in the most categories whereas the Midwest experiences the largest magnitude of ERPT in its significant categories.
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Research completed at the Department of Economics, W. Frank Barton School of Business
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v.4