Exchange Rate Pass-Through to Consumer Prices: Theory and Recent Evidence

Laurence Savoie-Chabot and Mikael Khan

Discussion Papers from Bank of Canada

Abstract: In an open economy such as Canada’s, exchange rate movements can have a material impact on consumer prices. This is particularly important in the current context, with the significant depreciation of the Canadian dollar vis-a-vis the U.S. dollar since late 2012. This paper provides a broad overview of the various mechanisms by which exchange rate movements pass through to consumer prices and discusses the implications of exchange rate pass-through (ERPT) for the conduct of monetary policy. It then describes some of the tools used at the Bank of Canada to help quantify ERPT. We conclude by taking a closer look at the current situation in Canada, presenting a range of evidence that suggests ERPT has played an important role in recent inflation dynamics.

Keywords: Exchange rates; Inflation and prices (search for similar items in EconPapers)
JEL-codes: E31 E52 F31 (search for similar items in EconPapers)
Pages: 11 pages
Date: 2015
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-opm
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Citations: View citations in EconPapers (19)

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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocadp:15-9

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