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Exchange rate pass-through in small, open, commodity-exporting economies: Lessons from Canada

Marco Flaccadoro

Journal of International Economics, 2024, vol. 148, issue C

Abstract: This paper analyses the exchange rate pass-through in small, open, commodity-exporting economies, taking Canada as a case study. I estimate it as being conditional on commodity shocks and compare the results with those of a standard approach, showing that the pass-through sign changes drastically across frameworks for consumer prices. My approach leads to a positive pass-through, thus implying a positive co-movement between exchange rate appreciation and consumer price inflation, conditional on the shocks. Conversely, standard models find a negative pass-through. I explain my findings by using the commodity-exporter characteristic of Canada and the nature of the shocks, which raise the demand for commodities. This, in turn, causes a currency appreciation and has inflationary effects domestically through higher commodity prices.

Keywords: Prices; Exchange rates; Pass-through; Commodity prices; Oil shocks (search for similar items in EconPapers)
JEL-codes: E31 F31 F4 Q02 Q43 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:148:y:2024:i:c:s0022199624000096

DOI: 10.1016/j.jinteco.2024.103885

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