The pass-through into import and consumer prices: New evidence from German micro data

Berner, Eike

This dissertation estimates the magnitude of cost pass-through rates at different levels and analyzes potential heterogeneity across countries, retailers and products. Its focus lies on Germany, which is one of the most active countries in international trade. My findings suggest that the exchange rate pass-through is generally incomplete, that is, exchange rate changes are not passed through one to one to German import prices. Exchange rate pass-through rates differ across German trading partners and are largest for German imports from non-European countries. In the further analysis of the apparel sector in Germany, I provide evidence that low- and high-income households differ in their choice of shopping stores. Apparel retailers, on the other hand, can be divided into high- and low-price retailers. The pass-through rate of import price changes is larger for low-price retailers and low-income households prefer shopping at these retailers. Consequently, the household specific pass-through rate is larger for low-income households. A theoretical model then provides one potential explanation for these observations which is bundling an otherwise homogeneous imported good with services. Following an import price shock, retailers who sell cheaper unbundled products change prices more than retailers who sell a higher-priced bundle of product and service. In a final step, I then distinguish the two retail formats supermarket and discounter and consider the German ground coffee market. Supermarkets generally have a higher price level, a broader product assortment and they change prices more often compared to discounters. Discounters, on the other hand, are characterized by longer price spells and a larger absolute price change for coffee products within the sample period. As a consequence, producer price changes are passed through at a higher degree to discount retailers' prices. The speed of price adjustment, however, does not show significant differences across retail formats.

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Berner, Eike: The pass-through into import and consumer prices: New evidence from German micro data.

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