The Signaling Effect of Exchange Rates: pass-through under dispersed information

Waldyr Areosa and Marta Areosa

No 282, Working Papers Series from Central Bank of Brazil, Research Department

Abstract: We examine exchange-rate pass-through (ERPT) to prices in a model of dispersed information in which the nominal exchange rate imperfectly conveys information about the underlying fundamentals. If the information is complete, ERPT is also complete. Under dispersed information, we derive conditions under which our model displays three properties that are consistent with the stylized facts of pass-through. First, ERPT lies between 0 and 1 (incomplete ERPT). Second, ERPT is usually higher for imported goods prices than for consumer prices (exchange rate-consumer price puzzle). Third, there is a link between ERPT and macroeconomic stability.

Date: 2012-06
New Economics Papers: this item is included in nep-cba, nep-cta, nep-mon and nep-opm
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Citations: View citations in EconPapers (3)

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