Some Implications for Monetary Policy of Uncertain Exchange Rate Pass-Through

March 4, 2003

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Format: Chicago

Benjamin L Hunt, and Peter Isard. Some Implications for Monetary Policy of Uncertain Exchange Rate Pass-Through, (USA: International Monetary Fund, 2003) accessed November 8, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The paper uses MULTIMOD to examine the implications of uncertain exchange rate pass-through for the conduct of monetary policy. From the policymaker's perspective, uncertainty about exchange rate pass-through implies uncertainty about policy multipliers and the impact of state variables on stabilization objectives. When faced with uncertainty about the strength of exchange rate pass-through, policymakers will make less costly errors by overestimating the strength of pass-through rather than underestimating it. The analysis suggests that pass-through uncertainty of the magnitude considered does not result in efficient policy response coefficients that are smaller than those under certainty.

Subject: Exchange rate adjustments, Exchange rate pass-through, Exchange rates, Foreign exchange, Import prices, Inflation, Output gap, Prices, Production

Keywords: Exchange Rate, Exchange rate pass-through, Exchange rates, Global, Import prices, Inflation, Monetary Policy, Output gap, Output variability, Pass-through coefficient, Pass-through effect, Pass-through result, Pass-through specification, Pass-through structure, Pass-through uncertainty, Uncertainty, WP

Publication Details

Pages:

36
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2003/025
Stock No:

WPIEA0252003
ISBN:

9781451844283
ISSN:

1018-5941

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