Differences in long run exchange rate pass-through into import prices in developing countries: An empirical investigation

This paper investigates the exchange rate pass-through into import prices in a sample of 24 developing countries over the period from 1980 to 2003. We estimate a pass-through equation determined by a combination of the nominal exchange rate, the price of the competing products, the exporter's costs and demand conditions. We adopt non-stationary panel estimation techniques and tests for cointegration. In the long run, homogeneity of pass-through rates across countries can be rejected. Moreover, we show that most of these differences in exchange rate pass-through into import prices are due to three macroeconomics determinants: exchange rate regimes, trade barriers and inflation regimes.