Explaining the Exchange Rate Pass-Through in Different Prices

Hamid Faruqee, Dalia Hakura and Ehsan Choudhri ()

No 2002/224, IMF Working Papers from International Monetary Fund

Abstract: This paper examines the performance of different new open economy macroeconomic models in explaining the exchange rate pass-through in a wide range of prices. Quantitative versions of different models are used to derive the dynamic response of various prices to an exchange rate shock. Predicted responses are compared with the evidence based on VAR models to examine how well different models fit the data. The results show that the best-fitting model incorporates a number of features highlighted by different strands of the literature: sticky prices, sticky wages, distribution costs, and a combination of local and producer currency pricing.

Keywords: WP; exchange rate; sticky wages; Exchange rate pass-through; Prices; New open economy macroeconomic models; exchange rate shock; PCP model; goods price; cost-minimizing price indexes; present discounted value; price level; sticky-price LCP model; LCP firm; open economy; PCP assumption; Exchange rates; Import prices; Export prices; Consumer prices (search for similar items in EconPapers)
Pages: 32
Date: 2002-12-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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Related works:
Journal Article: Explaining the exchange rate pass-through in different prices (2005)
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