Pass-Through of Exchange Rates on Prices of Forest Product Exports from the United States to Europe and Japan

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Abstract:

Western Europe and Japan are major importers of forest products from the United States. Foreign exchange policies can influence the volume of trade mostly to the extent that devaluations or appreciations of the dollar are passed through to importers in the form of lower or higher prices in their currency. This paper reports measures of the pass-through for 6 European countries and Japan, for 11 commodities. The pass-through was obtained from a bivariate time-series model of export price and exchange rate. The data were from January 1978 to December 1988, a period of wide fluctuations in the value of the dollar. The results showed that the pass-through was often incomplete. In addition, the pass-through was asymmetric: appreciations of the dollar tended to increase foreign prices more than devaluations decreased them. Together the two findings suggest, first that dollar devaluations might not be effective in increasing exports of forest products, and second that global forest product markets are susceptible to inflation spread by currency realignments. The pass-through varied considerably by region, commodity, and over time: while the short-term pass-through could be complete, the effect could decay to a small fraction of the initial value, or disappear completely within 1 year. This result is consistent with previous findings of weak or inexistent effects of exchange rate changes on quantities traded. For. Sci. 37(3):931-948.

Keywords: International trade; econometrics; logs; lumber; pulp and paper; time-series analysis

Document Type: Journal Article

Affiliations: Professor, Department of Forestry, University of Wisconsin, Madison, WI 53706

Publication date: August 1, 1991

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