Exchange-Rate Pass-Through in the G-7 Countries

35 Pages Posted: 22 Feb 2006

See all articles by Jane E. Ihrig

Jane E. Ihrig

Federal Reserve Board - International Financial Transactions

Mario Marazzi

Board of Governors of the Federal Reserve System - Division of International Finance (IFDP)

Alexander D. Rothenberg

Board of Governors of the Federal Reserve System

Date Written: January 2006

Abstract

This paper examines the current thinking on exchange-rate pass-through to both import prices and consumer prices and estimates the extent to which they have fallen in the G-7 countries since the late 1970s and 1980s. For import-price pass-through we find that all countries experience a numerical decline in the responsiveness of import prices to exchange-rate movements; for nearly half of these countries the decline between 1975-1989 and 1990-2004 is statistically significant. We estimate that while a 10 percent depreciation in the local currency would have increased import prices by nearly 7 percent on average across these countries in the late 1970s and 1980s, it would have only increased import prices by 4 percent in the last 15 years. The responsiveness of consumer prices to exchange-rate movements declines for nearly every country, with the decline being statistically significant for two countries. Specifically, while a 10 percent depreciation in the local currency would have increased consumer prices by almost 2 percent on average in the late 1970s and 1980s, it would have had a neutral effect on consumer prices in the last 15 years.

Keywords: Inflation, consumer prices, import prices, exchange rates, pass-through

JEL Classification: E31, F3, F41

Suggested Citation

Ihrig, Jane E. and Marazzi, Mario and Rothenberg, Alexander D., Exchange-Rate Pass-Through in the G-7 Countries (January 2006). FRB International Finance Discussion Paper No. 851. Available at SSRN: https://ssrn.com/abstract=886102 or http://dx.doi.org/10.2139/ssrn.886102

Jane E. Ihrig (Contact Author)

Federal Reserve Board - International Financial Transactions ( email )

20th and C Streets, NW
Washington, DC 20551
United States
202-452-3372 (Phone)
202-736-5638 (Fax)

Mario Marazzi

Board of Governors of the Federal Reserve System - Division of International Finance (IFDP) ( email )

20th St. and Constitution Ave.
Washington, DC 20551
United States
202-452-6489 (Phone)
202-872-4926 (Fax)

Alexander D. Rothenberg

Board of Governors of the Federal Reserve System ( email )

20th and C Streets NW
Washington, DC 20551
United States

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