Exchange rate pass-through in the USA and Canada

Eiman Aiyash and Ahmed S. Abou-Zaid

International Journal of Economics and Accounting, 2023, vol. 12, issue 1, 17-32

Abstract: This paper investigates the degree of exchange rate pass-through to import prices, producer prices, and consumer prices in Canada and the USA from 1980 to 2017 using a structural vector autoregression (SVAR) model. The results indicate a positive long-run correlation between exchange rate prices and aggregate price levels. The impulse response function reveals a persistent and incomplete pass-through for exchange rate prices, i.e., 0.20 for Canada and 0.27 for the USA. That is, greater pass-through exists in an economy with a more volatile monetary policy and higher inflation rate. Consistent with the impulse response function, variance decomposition reveals that exchange rate fluctuations explain more of the variation in consumer prices in the USA. However, in Canada, import prices are mainly defined by exchange rate fluctuations.

Keywords: exchange rate pass-through; import price index; IMP; producer price index; PPI; consumer price index; CPI; structural vector autoregression; SVAR; impulse response; variance decomposition; Canada; USA. (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:ids:ijecac:v:12:y:2023:i:1:p:17-32

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