Explaining the Exchange Rate Pass-Through in Different Prices

33 Pages Posted: 14 Feb 2006  

Ehsan U. Choudhri

Carleton University - Department of Economics

Hamid Faruqee

International Monetary Fund (IMF) - Research Department

Dalia Hakura

International Monetary Fund (IMF)

Date Written: December 2002

Abstract

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

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

Ehsan U. Choudhri (Contact Author)

Carleton University - Department of Economics ( email )

1125 Colonel By Drive
Ottawa, Ontario
Canada

Hamid Faruqee

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Dalia Hakura

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Paper statistics

Downloads
94
Rank
229,368
Abstract Views
616