{
  "title": "Monetary Policy Credibility and Exchange Rate Pass-Through",
  "publication": "IMF Working Papers, December 13, 2016",
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  "summary": "A long-standing conjecture in macroeconomics is that recent declines in exchange rate pass-through are in part due to improved monetary policy performance.",
  "sections": [
    {
      "heading": "Summary",
      "content": "- A long-standing conjecture in macroeconomics is that recent declines in exchange rate pass-through are in part due to improved monetary policy performance.\n- In a large sample of emerging and advanced economies, the authors find evidence of a strong link between exchange rate pass-through to consumer prices and the monetary policy regime’s performance in delivering price stability.\n- Using input-output tables, the paper decomposes exchange rate pass-through to consumer prices into:\n  - a component that reflects the adjustment of imported goods at the border, and\n  - a component that captures the response of all other prices.\n- The analysis finds that price stability and central bank credibility have reduced the second component (the response of all other prices)."
    },
    {
      "heading": "Methodology and Analytical Approach",
      "content": "- Empirical analysis covers a large sample of emerging and advanced economies.\n- Decomposition of pass-through relies on input-output tables to separate border-adjusting imported goods from domestic-price responses.\n- Pass-through is measured with reference to consumer prices and is linked to indicators of monetary policy performance and credibility."
    },
    {
      "heading": "Key Findings",
      "content": "- There is a strong empirical link between exchange rate pass-through to consumer prices and the monetary policy regime’s effectiveness in delivering price stability.\n- The decline in pass-through mainly reflects a reduction in the component capturing the response of non-border prices (i.e., \"all other prices\"), which is associated with improved price stability and central bank credibility.\n- The component reflecting adjustment of imported goods at the border is treated separately and is not the primary channel through which credibility reduces overall pass-through."
    },
    {
      "heading": "Policy Implications",
      "content": "- Strengthening monetary policy credibility and delivering sustained price stability can reduce the degree to which exchange rate movements are transmitted into domestic consumer prices (via the non-border price channel).\n- Central banks aiming to insulate domestic inflation from exchange rate shocks should prioritize policies and communications that enhance credibility and anchor inflation expectations."
    },
    {
      "heading": "Scope and Subjects",
      "content": "- Focus areas include: Consumer prices, Exchange rate pass-through, Foreign exchange, Import prices, Inflation, Nominal effective exchange rate, Prices.\n- The study examines both emerging and advanced economies in a large-sample empirical framework.\n\nSource: IMF Working Paper \"Monetary Policy Credibility and Exchange Rate Pass-Through\" (authors and publication details as listed on the source page).\n\n---\n\n Content in this bundle\n\n- Monetary Policy Credibility and Exchange Rate Pass-Through\n  - Monetary Policy Credibility and Exchange Rate Pass-Through (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Monetary Policy Credibility and Exchange Rate Pass-Through (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/monetary-policy-credibility-and-exchange-rate-pass-through-44458"
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    "Authors: Yan Carriere-Swallow, Bertrand Gruss, Nicolas E Magud, Fabian Valencia",
    "Published: December 13, 2016",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781475560312.001",
    "A long-standing conjecture in macroeconomics is that recent declines in exchange rate pass-through are in part due to improved monetary policy performance.",
    "In a large sample of emerging and advanced economies, the authors find evidence of a strong link between exchange rate pass-through to consumer prices and the monetary policy regime’s performance in delivering price stability.",
    "Using input-output tables, the paper decomposes exchange rate pass-through to consumer prices into:",
    "The analysis finds that price stability and central bank credibility have reduced the second component (the response of all other prices).",
    "Empirical analysis covers a large sample of emerging and advanced economies.",
    "Decomposition of pass-through relies on input-output tables to separate border-adjusting imported goods from domestic-price responses.",
    "Pass-through is measured with reference to consumer prices and is linked to indicators of monetary policy performance and credibility.",
    "There is a strong empirical link between exchange rate pass-through to consumer prices and the monetary policy regime’s effectiveness in delivering price stability.",
    "The decline in pass-through mainly reflects a reduction in the component capturing the response of non-border prices (i.e., \"all other prices\"), which is associated with improved price stability and central bank credibility.",
    "The component reflecting adjustment of imported goods at the border is treated separately and is not the primary channel through which credibility reduces overall pass-through.",
    "Strengthening monetary policy credibility and delivering sustained price stability can reduce the degree to which exchange rate movements are transmitted into domestic consumer prices (via the non-border price channel).",
    "Central banks aiming to insulate domestic inflation from exchange rate shocks should prioritize policies and communications that enhance credibility and anchor inflation expectations.",
    "Focus areas include: Consumer prices, Exchange rate pass-through, Foreign exchange, Import prices, Inflation, Nominal effective exchange rate, Prices.",
    "The study examines both emerging and advanced economies in a large-sample empirical framework.",
    "**Monetary Policy Credibility and Exchange Rate Pass-Through**"
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