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Conditional exchange rate pass-through: evidence from Sweden

Vesna Corbo () and Paola Di Casola ()
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Vesna Corbo: Monetary Policy Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Paola Di Casola: Monetary Policy Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden

No 352, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

Abstract: The pass-through from exchange rate changes to inflation differs depending on the underlying shock. This paper quantifies the conditional exchange rate pass-through (CERPT) to prices, i.e. the change in prices relative to that in the exchange rate following a certain exogenous shock, with a structural econometric approach using data for Sweden, a small economy that is very open to trade. We find that the pass-through to consumer prices following an exogenous exchange rate shock is rather small. Importantly, this shock is not the most important driver of exchange rate uctuations, unlike what standard structural macroeconomic models would indicate. For Sweden, the CERPT is negative not only for domestic but also for global demand shocks. The estimated combination of shocks with positive and negative CERPT implies that the average pass-through to consumer prices is roughly zero.

Keywords: Exchange rate; pass-through; consumer prices; import prices; monetary policy; SVAR. (search for similar items in EconPapers)
JEL-codes: E31 E52 F31 F41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-opm
Date: 2018-03-01
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:rbnkwp:0352

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