EXCHANGE RATE PASS-THROUGH TO DOMESTIC PRICES: THE CASE OF COLOMBIA

This study uses an econometric framework based on an unrestricted vector autoregressive (VAR) model to study exchange rate pass-through to import, producer and consumer prices in Colombia. Exchange rate pass-through is shown to be incomplete. Import prices, nevertheless, respond quickly to an exchange rate change, where some 80 percent of such a change is passed onto prices of imports within 12 months. The corresponding figure for producer prices is 28 percent and for consumer prices 8 percent. We can, consequently, conclude that pass-through is modest for producer prices and very limited for consumer prices. An exchange rate shock does, therefore, only have limited impact on consumer price inflation.