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

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...

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Bibliographic Details
Main Author: Hakura, Dalia
Other Authors: Choudhri, Ehsan
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 2001
Series:IMF Working Papers
Subjects:
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
Description
Summary: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
Physical Description:36 pages
ISBN:9781451859867