33 Pages Posted: 14 Feb 2006
Date Written: December 2002
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.
Keywords: Exchange rate pass-through, Prices, New open economy macroeconomic models
JEL Classification: E31, F41
Suggested Citation: Suggested Citation
Choudhri, Ehsan U. and Faruqee, Hamid and Hakura, Dalia, Explaining the Exchange Rate Pass-Through in Different Prices (December 2002). IMF Working Paper, Vol. , pp. 1-33, 2002. Available at SSRN: https://ssrn.com/abstract=880916