Exchange Rate Pass-Through to Domestic Prices: Does the Inflationary Environment Matter?
Electronic Access:
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Summary:
The paper tests a hypothesis suggested by Taylor (2000) that a low inflationary environment leads to a low exchange rate pass-through to domestic prices. To test this hypothesis, the paper derives a pass-through relation based on new open economy macroeconomic models. A large database that includes 1979-2000 data for 71 countries is used to estimate this relation. There is strong evidence of a positive and significant association between the pass-through and the average inflation rate across countries and periods. The inflation rate, moreover, dominates other macroeconomic variables in explaining cross-regime differences in the pass-through.
Series:
Working Paper No. 2001/194
Subject:
Consumer price indexes Exchange rate adjustments Exchange rate pass-through Exchange rates Foreign exchange Inflation Prices
English
Publication Date:
December 1, 2001
ISBN/ISSN:
9781451859867/1018-5941
Stock No:
WPIEA1942001
Pages:
36
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