Pass-Through of Exchange Rates and Import Prices to Domestic Inflation in Some Industrialized Economies

52 Pages Posted: 10 Dec 2000

See all articles by Jonathan McCarthy

Jonathan McCarthy

Federal Reserve Bank of New York - Research Department

Date Written: June 2000

Abstract

This paper examines the impact of exchange rates and import prices on the domestic producer price index and consumer price index in selected industrialized economies. The empirical model is a vector autoregression incorporating a distribution chain of pricing. When the model is estimated over the post-Bretton Woods era, impulse responses indicate that exchange rates have a modest effect on domestic price inflation while import prices have a stronger effect. Pass-through is larger in countries with a larger import share and more persistent exchange rates and import prices. Over 1996-98, these external factors have had a sizable disinflationary effect in many of the countries, but not in the United States. Estimating the model using post-1982 data has little effect on these conclusions.

Keywords: pass-through, inflation, exchange rates, import prices

JEL Classification: E31, F41, F31

Suggested Citation

McCarthy, Jonathan, Pass-Through of Exchange Rates and Import Prices to Domestic Inflation in Some Industrialized Economies (June 2000). FRB of New York Staff Report No. 111. Available at SSRN: https://ssrn.com/abstract=249576 or http://dx.doi.org/10.2139/ssrn.249576

Jonathan McCarthy (Contact Author)

Federal Reserve Bank of New York - Research Department ( email )

33 Liberty Street
New York, NY 10045
United States
(212) 720-5645 (Phone)
(212) 720-1844 (Fax)

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