This paper explores the relationship between the terms of trade and inflation. It shows, both analytically and empirically, that the exchange rate response to a change in the terms of trade is crucial to the inflation outcome. It suggests the existence of a ‘threshold’ exchange rate...

In the past decade, inflation in Australia and most other industrialised countries has been extremely well behaved. An important question is whether this reflects a series of favourable shocks to prices or a more fundamental change in the inflation process. In this paper, we explore developments...

This paper examines the pass-through of exchange rate changes to the domestic prices of imported consumer goods. Two distinct stages can be identified in the adjustment process. First, changes in the exchange rate are passed on to changes in the prices of imports over the docks. Second, these...