Has Exchange Rate Pass-Through Really Declined? Some Recent Insights from the Literature
Building on an earlier <em>Review</em> article, the authors critically reassess the premise that exchange rate pass-through (ERPT) has declined in light of recent studies of the issue in the context of a dynamic stochastic general-equilibrium framework. This recent work helps to emphasize the pitfalls of previous studies based on reduced-form models. For example, ERPT to import prices may be larger than the estimated parameters of reduced-form models would indicate. On the other hand, the authors find fairly convincing evidence that measured short-run ERPT to consumer prices has declined because of a shift to more credible monetary policy regimes. In this case, the findings from DSGE models confirm the results from reduced-form models. Insights from recent studies of ERPT based on microdata are examined, and policy implications are discussed.
Year of publication: |
2010
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Authors: | Bailliu, Jeannine ; Dong, Wei ; Murray, John |
Published in: |
Bank of Canada Review. - Bank of Canada. - Vol. 2010.2010, Autumn, p. 1-8
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Publisher: |
Bank of Canada |
Saved in:
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