Exchange Rate Pass-Through in Spain

Zuzana Murgasova

No 1996/114, IMF Working Papers from International Monetary Fund

Abstract: This paper examines the factors underlying the stability of inflation observed following devaluations of the Spanish peseta, which took place during the 1992-93 Exchange Rate Mechanism (ERM) crisis. The long-run equilibrium relationships between the exchange rate and the aggregate price indices are estimated using the Johansen maximum likelihood-method. The short-run dynamics are obtained from error-correction models. The model is then simulated by calibrating changes in the exogenous variables to their actual values. The results indicate that the cost-push-up effect of devaluations may have been completely offset by determinants of the cyclical position of the economy and the low inflation rate in 1993-94 should not be viewed as unusual.

Keywords: WP; exchange rate; price level; inflation rate; unemployment rate; pass-through theory; price inflation; import-price effect; price change; exchange rate pass-through theory; wage-price inflation spiral; home export price; import price relationship; export price change; import-open economy; effects of import price change; Import prices; Export prices; Inflation; Exchange rate pass-through; Exchange rate adjustments (search for similar items in EconPapers)
Pages: 32
Date: 1996-10-01
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Citations: View citations in EconPapers (5)

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