In Search of the Lost Exchange Rate Pass-Through in Mexico

Samuel Martinez and Daniel Ventosa-Santaulària

Working Papers from HAL

Abstract: Exchange rate pass-through (ERPT) is a key channel through which external shocks affect domestic inflation in open emerging market economies (EMEs). This paper estimates ERPT for Mexico using local projections with an instrumental-variable strategy to trace the cumulative effects of peso-dollar depreciations on consumer prices. The results indicate a relatively high degree of pass-through–higher than most estimates reported in the existing literature–suggesting that Mexican inflation responds more strongly to exchangerate movements than commonly assumed. Although price subcomponents display the expected heterogeneity (with goods showing the highest sensitivity and services the lowest), the main implication is clear: exchange-rate fluctuations remain a powerful driver of inflation dynamics, underscoring the policy relevance of monitoring currency volatility in open EMEs such as Mexico.

Keywords: Exchange rate Pass-through; ERPT; EMEs; Mexico; Local Projections; Inflation (search for similar items in EconPapers)
Date: 2025-12-18
Note: View the original document on HAL open archive server: https://hal.science/hal-05425626v1
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Working Paper: In Search of the Lost Exchange Rate Pass-Through in Mexico (2025)
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