International Evidence on Shock-Dependent Exchange Rate Pass-Through

Kristin Forbes, Ida Hjortsoe and Tsvetelina Nenova ()

No 27746, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We analyse the economic conditions (the “shocks”) behind currency movements and show how that analysis can help address a range of questions, focusing on exchange rate pass-through to prices. We build on a methodology previously developed for the United Kingdom and adapt this framework so that it can be applied to a diverse sample of countries using widely available data. The paper provides three examples of how this enriched methodology can be used to provide insights on pass-through and other questions. First, it shows that exchange rate movements caused by monetary policy shocks consistently correspond to significantly higher pass-through than those caused by demand shocks in a cross-section of countries, confirming earlier results for the UK. Second, it shows that the underlying shocks (especially monetary policy shocks) are particularly important for understanding the time-series dimension of pass-through, while the standard structural variables highlighted in previous literature are most important for the cross-section dimension. Finally, the paper explores how the methodology can be used to shed light on the effects of monetary policy and the debate on "currency wars": it shows that the role of monetary policy shocks in driving the exchange rate has increased moderately since the global financial crisis in advanced economies.

JEL-codes: E31 E37 E52 F47 (search for similar items in EconPapers)
Date: 2020-08
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-opm
Note: IFM ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

Published as Kristin Forbes & Ida Hjortsoe & Tsvetelina Nenova, 2020. "International Evidence on Shock-Dependent Exchange Rate Pass-Through," IMF Economic Review, vol 68(4), pages 721-763.

Downloads: (external link)
http://www.nber.org/papers/w27746.pdf (application/pdf)

Related works:
Journal Article: International Evidence on Shock-Dependent Exchange Rate Pass-Through (2020)
Working Paper: International Evidence on Shock-Dependent Exchange Rate Pass-Through (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:27746

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w27746

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().