Conditional Exchange Rate Pass-Through: Evidence from Sweden

Riksbank Research Paper Series No. 175

Sveriges Riksbank Working Paper Series No. 352

57 Pages Posted: 2 Nov 2018

See all articles by Vesna Corbo

Vesna Corbo

Sveriges Riksbank - Monetary Policy

Paola Di Casola

Sveriges Riksbank - Monetary Policy

Date Written: March 2018

Abstract

The pass-through from exchange rate changes to inflation differs depending on the underlying shock. This paper quantifies the conditional exchange rate pass-through (CERPT) to prices, i.e. the change in prices relative to that in the exchange rate following a certain exogenous shock, with a structural econometric approach using data for Sweden, a small economy that is very open to trade. We find that the pass-through to consumer prices following an exogenous exchange rate shock is rather small. Importantly, this shock is not the most important driver of exchange rate fluctuations, unlike what standard structural macroeconomic models would indicate. For Sweden, the CERPT is negative not only for domestic but also for global demand shocks. The estimated combination of shocks with positive and negative CERPT implies that the average pass-through to consumer prices is roughly zero.

Keywords: Exchange rate, pass-through, consumer prices, import prices, monetary policy, SVAR

JEL Classification: E31, E52, F31, F41

Suggested Citation

Corbo, Vesna and Di Casola, Paola, Conditional Exchange Rate Pass-Through: Evidence from Sweden (March 2018). Sveriges Riksbank Working Paper Series No. 352. Available at SSRN: https://ssrn.com/abstract=3263487 or http://dx.doi.org/10.2139/ssrn.3263487

Vesna Corbo

Sveriges Riksbank - Monetary Policy ( email )

SE-103 37 Stockholm
Sweden

Paola Di Casola (Contact Author)

Sveriges Riksbank - Monetary Policy ( email )

SE-103 37 Stockholm
Sweden

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