Exchange Rate Pass-Through in Spain
Summary:
This paper examines the factors underlying the stability of inflation observed following devaluations of the Spanish peseta, which took place during the 1992-93 Exchange Rate Mechanism (ERM) crisis. The long-run equilibrium relationships between the exchange rate and the aggregate price indices are estimated using the Johansen maximum likelihood-method. The short-run dynamics are obtained from error-correction models. The model is then simulated by calibrating changes in the exogenous variables to their actual values. The results indicate that the cost-push-up effect of devaluations may have been completely offset by determinants of the cyclical position of the economy and the low inflation rate in 1993-94 should not be viewed as unusual.
Series:
Working Paper No. 1996/114
Subject:
Exchange rate adjustments Exchange rate pass-through Export prices Foreign exchange Import prices Inflation Prices
English
Publication Date:
October 1, 1996
ISBN/ISSN:
9781451943412/1018-5941
Stock No:
WPIEA1141996
Pages:
32
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