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Is a Low-inflation Environment Associated with Reduced Exchange Rate Pass Through?

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Author Info
Mark J. Holmes () (Department of Economics, Waikato University Management School, New Zealand)

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Abstract

This paper investigates the extent of pass through from the US dollar exchange rate to consumer prices in the European Union. A relatively new line of empirical research is pursued that considers whether or not the extent of exchange rate pass through is related to the inflationary environment. In contrast to previous empirical studies, recently developed panel data cointegrating techniques to measure long run pass through are employed. While there is evidence that long-run pass through has declined since the 1970s, it actually increased during the early ERM years despite the presence of lower inflation.

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File URL: http://www.taloustieteellinenseura.fi/fep/articles/FEP22006_holmes.pdf
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Publisher Info
Article provided by Finnish Society for Economic Research in its journal Finnish Economic Papers.

Volume (Year): 19 (2006)
Issue (Month): 2 (Autumn)
Pages: 58-68
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Handle: RePEc:fep:journl:v:19:y:2006:i:2:p:58-68

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Web page: http://www.taloustieteellinenseura.fi
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Find related papers by JEL classification:
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
F49 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Other

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  1. Baldwin, Richard & Krugman, Paul, 1989. "Persistent Trade Effects of Large Exchange Rate Shocks," The Quarterly Journal of Economics, MIT Press, vol. 104(4), pages 635-54, November. [Downloadable!] (restricted)
    Other versions:
  2. Dixit, Avinash K, 1989. "Hysteresis, Import Penetration, and Exchange Rate Pass-Through," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 205-28, May. [Downloadable!] (restricted)
  3. Pinelopi Koujianou Goldberg & Michael M. Knetter, 1997. "Goods Prices and Exchange Rates: What Have We Learned?," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1243-1272, September. [Downloadable!] (restricted)
    Other versions:
  4. Menon, Jayant, 1995. " Exchange Rate Pass-Through," Journal of Economic Surveys, Blackwell Publishing, vol. 9(2), pages 197-231, June.
  5. Jonathan McCarthy, 2000. "Pass-through of exchange rates and import prices to domestic inflation in some industrialized economies," Staff Reports 111, Federal Reserve Bank of New York. [Downloadable!]
    Other versions:
  6. Taylor, John B., 2000. "Low inflation, pass-through, and the pricing power of firms," European Economic Review, Elsevier, vol. 44(7), pages 1389-1408, June. [Downloadable!] (restricted)
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This page was last updated on 2008-9-30.

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