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

Marco Flaccadoro ()
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Marco Flaccadoro: Bank of Italy

No 1368, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: We analyse the pass-through of exchange rates to prices in small, open, commodity-exporting economies, taking Canada as a case study. We estimate pass-through on a wide cross-section of disaggregated import, producer, and consumer prices, conditional on commodity shocks that explain a major share of the volatility in prices and exchange rates. Our pass-through measure is free from endogeneity concerns between prices and exchange rates and leads, in some cases, to opposite inference in reference to the sign of the pass-through compared with standard estimates. By focusing on industry-level producer price indexes, we show that conditional pass-through decreases with industry market power, while it increases with the degree of import penetration and the persistence of industry-specific shocks.

Keywords: time series; factor analysis; prices; exchange rates; pass-through; commodity prices; oil shocks (search for similar items in EconPapers)
JEL-codes: C32 C38 E31 F31 F4 Q02 Q43 (search for similar items in EconPapers)
Date: 2022-04
New Economics Papers: this item is included in nep-mon and nep-opm
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