Import Prices and the Competing Goods Effect
Abstract
I use disaggregated U.S. data from 1978 to 1988 to examine the impact of changes in the prices of imported manufactured goods on corresponding domestic prices--the "competing goods effect." I use an econometric specification which allows for product differentiation between domestic and imported goods, and provides measures of exchange rate pass-through and economies of scale.
ABSTRACT I use disaggregated U.S. data from 1978 to 1988 to examine the impact of changes in the pric(~s of imported manufactured goods on corresponding domestic prices--the "competing goods e1Iect." I use an econometric specification which allows for product differentiation between domestic and imported goods, and provides measures of exchange rate pass-through and economies of scale. I find that the impact of import prices on domestic prices varies substantially by industry, with statistically significant effects in nine ofnineteen two-digit SIC manufacturing categoric:s. However, even where the effects are statistically significant, they are typically small in economic terms. On the whole, I do not find support for the anecdotal evidence that firms in US manufacturing industries take advantage ofthe reduced competitive discipline of higher ilnport prices. Because import prices are not a substantial determinant ofdomestic prices in the U.S., this implies that the consequent danger ofimported inflation is small.
Cite this document
Phillip Swagel (1995). Import Prices and the Competing Goods Effect (IFDP 1995-508). Board of Governors of the Federal Reserve System, International Finance Discussion Papers. https://whenthefedspeaks.com/doc/ifdp_1995-508
@techreport{wtfs_ifdp_1995_508,
author = {Phillip Swagel},
title = {Import Prices and the Competing Goods Effect},
type = {International Finance Discussion Papers},
number = {1995-508},
institution = {Board of Governors of the Federal Reserve System},
year = {1995},
url = {https://whenthefedspeaks.com/doc/ifdp_1995-508},
abstract = {I use disaggregated U.S. data from 1978 to 1988 to examine the impact of changes in the prices of imported manufactured goods on corresponding domestic prices--the "competing goods effect." I use an econometric specification which allows for product differentiation between domestic and imported goods, and provides measures of exchange rate pass-through and economies of scale.},
}