The Pass-through from Depreciation to Inflation: Chile 1986-2001

Carlos Noton

Working Papers from University of Chile, Department of Economics

Abstract: A microeconomic model of imperfect Cournot competition is used to derive an explicit endogenous relationship between price level and the nominal exchange rate. We obtain a markup that varies endogenously with consumer real income. Using the model, the estimated passthrough - namely the impact of devaluation on inflation - ranges between 9-11% in the short run and between 21-32% in the long run for the period 1986-2001. However, the data supports a structural change in 1991, after which the pass-through coefficient decline significantly. Moreover, contrary to conventional wisdom, we find no evidence of procyclical pass-through.

Keywords: Exchange rate; Devaluation; Pass-through; Inflation; Endogenous Mark-up; Oligoplistic Cournot Competition. (search for similar items in EconPapers)
JEL-codes: E31 F31 (search for similar items in EconPapers)
Date: 2003-12
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Citations: View citations in EconPapers (3)

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Journal Article: The pass-through from depreciation to inflation: Chile 1986-2001 (2003)
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