New Keynesian Exchange Rate Pass-Through

Author/Editor:

David Cook ; Woon Gyu Choi

Publication Date:

September 1, 2008

Electronic Access:

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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:

Using the theory of optimal local currency pricing, this paper constructs a structural equation to estimate the rate at which foreign producer prices pass through the local currency prices of imported goods in the U.S. This can be viewed as measuring exchange rate pass-through, in line with price stickiness in the New Keynesian Phillips curve literature. We estimate the structural equation using the generalized methods of moments for consistent estimates of exchange rate pass-through. We find that a model with a mix of local currency pricing and producer currency pricing fits the data best. The estimate of price stickiness in import prices is comparable to existing estimates of domestic price stickiness.

Series:

Working Paper No. 08/213

Subject:

Frequency:

Biannually

English

Publication Date:

September 1, 2008

ISBN/ISSN:

9781451870718/1018-5941

Stock No:

WPIEA2008213

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

25

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