of about -0.47% after 4 quarters. It gets progressively weaker following the pricing chain on
the PPI, with an effect of -0.35% after 5 quarters on PPI intermediate goods, and of -0.15%
after about 8 quarters for PPI consumer goods.
Chart 5 Impact multiplier of the exchange rate
(deviation from baseline following 1% increase in nominal effective exchange rate)
Effect of 1% NEER appreciation on
producer prices
(deviation from baseline)
Effect of 1% NEER appreciation on
consumer prices
(deviation from baseline)
PPENE: PPI energy; PPINT: PPI intermediate goods; PPCONS: PPI consumer goods; CPFDPR: HICP
processed food; CPNEIG: HICP non-energy industrial goods; CPSERV: HICP services, CPEX: HICP excluding
unprocessed food and energy.
The timing and the pass-through to the energy and consumer goods’ PPI is similar to Hahn
(2007) who found an impact of -0.68 and -0.16 after 8 quarters for these two sectors,
respectively, while the effect on PPI intermediate goods is somewhat lower according to her
results (-0.17 after 8 quarters). The results of Bailliu and Fujii (2004) are, with a long-run
impact of -0.28 to -0.37 on total producer prices, also in line with our results, while Campa
and Gonzalez Minguez (2006), Faruqee (2006) and Hahn (2003) point to somewhat lower
effects on total euro area producer prices (-0.12, -0.17 and -0.06, respectively). Note that the
latter four studies also include capital goods in the aggregate which is not taken into account
in our study. According to Hahn (2007), the exchange rate pass-through to capital goods
consumer prices is around -0.04, i.e. much smaller than what has been found for the other
sectors. Choudri et al. (2002) estimated a VAR for the G7 countries excluding the US and
found an exchange rate pass-through of -0.15 on producer prices after 10 quarters.
For consumer prices, the effect is rather similar for processed food and non-energy industrial
goods prices with an effect around -0.10% after 16 quarters, and a bit smaller for services
prices (around -0.08%). The somewhat weaker effect on services prices reflects the lower
import content of this component, along with the higher labour intensity of this sector. The
ECB ■
Working Paper Series No 1104
November 2009∣ 15