Exchange Rate Pass-Through to Domestic Prices: Does the Inflationary Environment Matter?

Dalia Hakura and Ehsan Choudhri ()

No 2001/194, IMF Working Papers from International Monetary Fund

Abstract: The paper tests a hypothesis suggested by Taylor (2000) that a low inflationary environment leads to a low exchange rate pass-through to domestic prices. To test this hypothesis, the paper derives a pass-through relation based on new open economy macroeconomic models. A large database that includes 1979-2000 data for 71 countries is used to estimate this relation. There is strong evidence of a positive and significant association between the pass-through and the average inflation rate across countries and periods. The inflation rate, moreover, dominates other macroeconomic variables in explaining cross-regime differences in the pass-through.

Keywords: WP; exchange rate; inflation rate; Pass-through; inflation; pass-through relation; inflation regime; import price pass-through; period pass-through; pass-through measure; pass-through estimate; CPI pass-through; Exchange rate pass-through; Exchange rates; Exchange rate adjustments; Consumer price indexes; Africa (search for similar items in EconPapers)
Pages: 36
Date: 2001-12-01
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Citations: View citations in EconPapers (180)

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Journal Article: Exchange rate pass-through to domestic prices: Does the inflationary environment matter? (2006)
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