Monetary Policy Credibility and Exchange Rate Pass-Through

34 Pages Posted: 9 Aug 2017

See all articles by Yan Carriere-Swallow

Yan Carriere-Swallow

International Monetary Fund (IMF)

Bertrand Gruss

International Monetary Fund (IMF)

Nicolás E. Magud

International Monetary Fund (IMF)

Fabián Valencia

International Monetary Fund (IMF)

Date Written: December 2016

Abstract

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.

Keywords: Price stabilization, Monetary policy, Exchange rate pass-through, Emerging markets, Consumer prices, Developed countries, Cross country analysis, monetary policy credibility

JEL Classification: E31, E52, F41

Suggested Citation

Carriere-Swallow, Yan and Gruss, Bertrand and Magud, Nicolas E. and Valencia, Fabian V., Monetary Policy Credibility and Exchange Rate Pass-Through (December 2016). IMF Working Paper No. 16/240. Available at SSRN: https://ssrn.com/abstract=3014032

Yan Carriere-Swallow (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Bertrand Gruss

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Nicolas E. Magud

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Fabian V. Valencia

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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