Table 4.2 presents the estimates of the exchange rate pass-through rate (λ) and the
substitution elasticity (σ) for each sector. Overall, the estimated pass-through rates
are sensible and precisely estimated in our preferred specification (the first three
columns of the table). In eight of the 13 sectors, estimates are bounded between zero
and one at the 95 per cent significance level, and only two sectors (transportation
equipment and food, beverages and tobacco) have point estimates outside this range.
Thus for most sectors, we can strongly reject the hypothesis that there is complete
pass through of nominal exchange rate fluctuations. The median pass-through
estimate is 0.44. Estimated pass-through rates of this magnitude are consistent with
the finding of incomplete pass-through in the prior studies cited above. The estimates
for substitution elasticity for our preferred specification in table 4.1 are also precisely
estimated. The point estimates are all greater than one and significantly different
from one in nine sectors at the 95 per cent significance level. The median elasticity
is 1.84. For comparison, we are not aware of any estimates employing the current
methodology or WIOD data, but elasticities in the GTAP model may be the closest
available estimates at a similar level of aggregation. The median elasticity in the 15
non-food, non-petroleum manufacturing sectors in the GTAP model is 3.75, twice the
median estimate in this study.