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Explaining the Exchange Rate Pass-Through in Different Prices
Author:
Mr. Hamid Faruqee
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Ms. Dalia S Hakura
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Ehsan U. Choudhri null

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Series:
IMF Working Papers
Volume/Issue:
Volume 2002: Issue 224
Language:
English
Publication Date:
01 Dec 2002
DOI:
https://doi.org/10.5089/9781451875331.001
ISBN:
9781451875331
ISSN:
1018-5941
Pages:
32
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
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund