Explaining the Exchange Rate Pass-Through in Different Prices
Ehsan U. Choudhri
Carleton University - Department of Economics
International Monetary Fund (IMF) - Research Department
International Monetary Fund (IMF)
IMF Working Paper No. 02/224
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.
Number of Pages in PDF File: 33
Keywords: Exchange rate pass-through, Prices, New open economy macroeconomic models
JEL Classification: E31, F41
Date posted: February 14, 2006
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