An input–output model of exchange-rate pass-through

Osman Aydoğuş, Çağaçan Değer, Elif Tunalı Çalışkan and Gülçin Günal (gulcin.gurel@ege.edu.tr)

Economic Systems Research, 2018, vol. 30, issue 3, 323-336

Abstract: The impact of the exchange rate on price formation is often debated through a mechanism called the exchange-rate pass-through. Studies of the pass-through generally rely on econometric analysis implemented on time series data. This study examines pass-through to the domestic price level through an input–output model. The proposed model is implemented on a sample of countries, and a number of different variables connected to the pass-through are examined. A comparison across countries and sectors highlights the importance of the construction sector in price formation. National income is negatively related to the pass-through. A high dependence on intermediate imports implies higher pass-through. Price level volatility and pass-through are positively related; whereas a country’s monetary policy stance has no apparent effect. The effect of exchange-rate volatility is unclear; it is negative for the real effective exchange rate, the connection is very weak in the case of the nominal exchange rate.

Date: 2018
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DOI: 10.1080/09535314.2017.1374243

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