Monetary Policy Credibility and Exchange Rate Pass-Through
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. In a large sample of emerging and advanced economies, we 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, we decompose exchange rate pass-through to consumer prices into a component that reflects the adjustment of imported goods at the border, and another that captures the response of all other prices. We find that price stability and central bank credibility have reduced the second component.
Subject: Consumer prices, Exchange rate pass-through, Foreign exchange, Import prices, Inflation, Nominal effective exchange rate, Prices
Keywords: Asia and Pacific, Consumer prices, Europe, Exchange rate pass-through, Global, import content, Import prices, Inflation, least squares, monetary policy, monetary policy credibility, Nominal effective exchange rate, pass-through coefficient, pass-through estimate, pass-through to consumer prices, WP
Pages:
33
Volume:
2016
DOI:
Issue:
240
Series:
Working Paper No. 2016/240
Stock No:
WPIEA2016240
ISBN:
9781475560312
ISSN:
1018-5941
