Exchange Rate Pass-Through to Domestic Prices: Does the Inflationary Environment Matter?
December 1, 2001
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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.
Subject: Consumer price indexes, Exchange rate adjustments, Exchange rate pass-through, Exchange rates, Foreign exchange, Inflation, Prices
Keywords: Africa, Consumer price indexes, CPI pass-through, exchange rate, Exchange rate adjustments, Exchange rate pass-through, Exchange rates, import price pass-through, inflation, inflation rate, inflation regime, Pass-through, pass-through estimate, pass-through measure, pass-through relation, period pass-through, WP
Pages:
36
Volume:
2001
DOI:
Issue:
194
Series:
Working Paper No. 2001/194
Stock No:
WPIEA1942001
ISBN:
9781451859867
ISSN:
1018-5941
