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

Board of Governors of the Federal Reserve System

Mario Marazzi

Board of Governors of the Federal Reserve System

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)

Board of Governors of the Federal Reserve System ( email )

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Mario Marazzi

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
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 )

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Washington, DC 20551
United States

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