New Keynesian Exchange Rate Pass-Through

27 Pages Posted: 12 Sep 2008

See all articles by Woon Gyu Choi

Woon Gyu Choi

International Monetary Fund (IMF); The Bank of Korea; Bank of Korea - Economic Research Institute

David E. Cook

Hong Kong University of Science & Technology (HKUST) - Department of Economics; Hong Kong University of Science & Technology (HKUST) - Department of Economics

Date Written: September 2008

Abstract

Using the theory of optimal local currency pricing, this paper constructs a structural equation to estimate the rate at which foreign producer prices pass through the local currency prices of imported goods in the U.S. This can be viewed as measuring exchange rate pass-through, in line with price stickiness in the New Keynesian Phillips curve literature. We estimate the structural equation using the generalized methods of moments for consistent estimates of exchange rate pass-through. We find that a model with a mix of local currency pricing and producer currency pricing fits the data best. The estimate of price stickiness in import prices is comparable to existing estimates of domestic price stickiness.

Keywords: Imports, Producer prices, Exchange rates, Exports, Trade models, Economic models, Working Paper

Suggested Citation

Choi, Woon Gyu and Cook, David E., New Keynesian Exchange Rate Pass-Through (September 2008). IMF Working Paper No. 08/213, Available at SSRN: https://ssrn.com/abstract=1266546

Woon Gyu Choi

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

The Bank of Korea ( email )

110, 3-Ga, Namdaemunno, Jung-Gu
Seoul 100-794, 100-794

Bank of Korea - Economic Research Institute ( email )

110, 3-Ga, Namdaemunno, Jung-Gu
Seoul 100-794
Korea, Republic of (South Korea)

David E. Cook

Hong Kong University of Science & Technology (HKUST) - Department of Economics ( email )

Clear Water Bay
Kowloon, Hong Kong
China
2538 7614 (Phone)

Hong Kong University of Science & Technology (HKUST) - Department of Economics ( email )

Clear Water Bay
Kowloon, Hong Kong
China
2538 7614 (Phone)

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