Explaining the Exchange Rate Pass-Through in Different Prices

Author/Editor:

Hamid Faruqee ; Dalia S Hakura ; Ehsan U. Choudhri

Publication Date:

December 1, 2002

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:

This paper examines the performance of different new open economy macroeconomic models in explaining the exchange rate pass-through in a wide range of prices. Quantitative versions of different models are used to derive the dynamic response of various prices to an exchange rate shock. Predicted responses are compared with the evidence based on VAR models to examine how well different models fit the data. The results show that the best-fitting model incorporates a number of features highlighted by different strands of the literature: sticky prices, sticky wages, distribution costs, and a combination of local and producer currency pricing.

Series:

Working Paper No. 2002/224

Subject:

Consumer prices Exchange rate pass-through Exchange rates Export prices Foreign exchange Import prices Labor Prices

English

Publication Date:

December 1, 2002

ISBN/ISSN:

9781451875331/1018-5941

Stock No:

WPIEA2242002

Pages:

32

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