International Evidence on Shock-Dependent Exchange Rate Pass-Through

Kristin Forbes, Hjortsø, Ida and Tsvetelina Nenova ()
Authors registered in the RePEc Author Service: Ida Hjortsoe

No 15242, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We analyse the economic conditions (the “shocks†) behind currency movements and show how that analysis can help address a range of questions, focusing on exchange rate pass-through to prices. We build on a methodology previously developed for the United Kingdom and adapt this framework so that it can be applied to a diverse sample of countries using widely available data. The paper provides three examples of how this enriched methodology can be used to provide insights on pass-through and other questions. First, it shows that exchange rate movements caused by monetary policy shocks consistently correspond to significantly higher pass-through than those caused by demand shocks in a cross-section of countries, confirming earlier results for the UK. Second, it shows that the underlying shocks (especially monetary policy shocks) are particularly important for understanding the time-series dimension of pass-through, while the standard structural variables highlighted in previous literature are most important for the cross-section dimension. Finally, the paper explores how the methodology can be used to shed light on the effects of monetary policy and the debate on "currency wars": it shows that the role of monetary policy shocks in driving the exchange rate has increased moderately since the global financial crisis in advanced economies.

Keywords: Pass-through; exchange rate; Price level; inflation; Monetary policy; Currency wars (search for similar items in EconPapers)
JEL-codes: E31 E37 E52 F47 (search for similar items in EconPapers)
Date: 2020-09
New Economics Papers: this item is included in nep-mac, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Related works:
Journal Article: International Evidence on Shock-Dependent Exchange Rate Pass-Through (2020)
Working Paper: International Evidence on Shock-Dependent Exchange Rate Pass-Through (2020)
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