Pass-through to export prices: Evidence from Australia†

Abstract

Australia is a leading exporter of primary and agricultural commodities like iron ore, coal, wool and beef. Industry stakeholders point out that exchange rate fluctuations remain a key determinant of export revenue. This article investigates the exchange rate pass-through to export prices using the recently proposed impulse responses by the local projections technique. Employing export prices in all destination markets and trade-weighted exchange rates, there is substantial evidence that 17 SITC industry and sub-industry level prices experience moderate to high exchange rate pass-through to export prices. These industry categories include sectors like minerals and natural resources products, which are homogenous in nature, and Australia enjoys a comparative advantage in the export of such goods. However, this competitive edge does not necessarily lead to higher export prices, as currency invoicing plays an important role in determining the extent of the pass-through effect. Our findings have important policy implications, especially regarding the invoicing currency strategy for exporters selling homogenous items.