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Exchange rate pass-through into euro area inflation. An estimated structural model

Lorenzo Burlon (), Alessandro Notarpietro () and Massimiliano Pisani ()

No 1192, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: We evaluate the exchange rate pass-through (ERPT) into euro area (EA) inflation by estimating an open economy New Keynesian model with Bayesian methods. In the model ERPT is incomplete because of local currency pricing and distribution services, with the latter allowing to distinguish between ERPT at the border and ERPT at the consumer level. Our main results are the following ones. First, ERPT into EA prices is, in general, high. Second, it is particularly high in correspondence of exchange rate and monetary policy shocks. Third, the EA monetary stance is relevant for ERPT; in particular, ERPT is higher if the stance is accommodative in correspondence of expansionary demand shocks.

Keywords: exchange rate; import prices; pass-through; monetary policy; euro area. (search for similar items in EconPapers)
JEL-codes: C11 E40 E47 E52 F41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-eec, nep-mac, nep-mon and nep-opm
Date: 2018-09
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_1192_18

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