Unequal Exchange Rate Pass-Through across Income Groups

Hakan Yilmazkuday

No 2005, Working Papers from Florida International University, Department of Economics

Abstract: Exchange rate pass-through (ERPT) into prices and into income loss are shown to be enough to calculate ERPT into welfare loss by using implications of a simple model. These ERPT measures are estimated at the good level by using a unique micro-price data set from Turkey, and they are combined with income-group specific expenditure shares at the good level to obtain aggregate-level ERPT measures for alternative income groups. An exchange rate shock resulting in a real depreciation of 1% is shown to decrease welfare by about 0.80% for the average-income consumer, while this estimate ranges between 0.73% and 0.83% for consumers in the lowest and highest income quintiles, respectively, suggesting evidence for redistributive effects of an exchange rate shock. Using micro prices has further resulted in showing that traded, nondurable, flexible-price, or income-elastic goods contribute more to ERPT into welfare loss for the average-income consumer, suggesting important policy implications for filtering out the noise in the measurement of aggregate-level prices.

Keywords: Exchange Rate Pass-Through; Welfare; Structural VAR; Micro Prices (search for similar items in EconPapers)
JEL-codes: F31 F41 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2020-05
New Economics Papers: this item is included in nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: UNEQUAL EXCHANGE RATE PASS-THROUGH ACROSS INCOME GROUPS (2022)
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