Do Prices Rise Faster than they Fall? Evidence from scanner data

A stylized fact is that prices of goods tend to react and rise faster in response to an increase in
costs of intermediate inputs, than they do when the costs of intermediate inputs decrease. This
paper uses scanner data of retailers in an emerging economy, Kazakhstan, to analyze how large
exchange rate shocks have an impact on consumer prices. We find, as in most of the literature,
incomplete exchange rate pass through (ERPT) into consumer prices, even after 12 months of
the initial shock. This ERPT, however, is heterogeneous and depends on the type of the product
(imported versus domestic), the size of the shock, and the size of the retailer. In particular,
ERPT is higher for imported products (50%) than for domestic products (25%); ERPT is
also non-linear and higher for large retailers. Distinguishing the impacts of appreciation and
depreciation reveals that ERPT is asymmetric and the direction of asymmetry is the opposite
between imported and domestic products. This finding suggests that domestic producers may
be keen on preserving the market share while foreign manufacturers may be more concerned
with increasing markup.