Pass-through of exchange rates and import prices to domestic inflation in some industrialized economies

Abstract: This paper examines the impact of exchange rates and import prices on the domestic producer price index and consumer price index in selected industrialized economies. The empirical model is a vector autoregression incorporating a distribution chain of pricing. When the model is estimated over the post-Bretton Woods era, impulse responses indicate that exchange rates have a modest effect on domestic price inflation while import prices have a stronger effect. Pass-through is larger in countries with a larger import share and more persistent exchange rates and import prices. Over 1996-98, these external factors have had a sizable disinflationary effect in many of the countries, but not in the United States. Estimating the model using post-1982 data has little effect on these conclusions.

Keywords: pass-through; inflation; exchange rates; import prices;

JEL Classification: E31; F31; F41;

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Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Staff Reports

Publication Date: 2000-09-01

Number: 111

Note: For a published version of this report, see Jonathan McCarthy, "Pass-Through of Exchange Rates and Import Prices to Domestic Inflation in Some Industrialized Economies," Eastern Economic Journal 33, no.4 (Fall 2007): 511-37.