Incomplete Exchange Rate Pass-through in the European Car Market: Evidence from Hedonic Price Equations

This paper examines exchange rate pass-through in the automobile markets of twelve European Union countries. Using retail prices for individual car models for the 1993-96 period our estimates are based on a hedonic pricing framework which controls for model specific characteristics. Pass-through is found to be significantly below fifty percent in all countries. There is no evidence that either the relative market share of domestic firms or the imposition of non-tariff barriers are associated with a lower degree of pass-through. JEL classification: F14, L62 * We would like to thank Mike Sumner, Andrew Newell and Alasdair Smith for helpful comments on an earlier draft of this paper.