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Exchange Rate Pass-Through to Prices: Evidence from Mexico

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  • Carlos Capistrán
  • Raúl Ibarra-Ramírez
  • Manuel Ramos Francia

Abstract

This paper analyzes the pass-through of exchange rate to different price indexes in Mexico. The analysis is based on a vector autoregressive model (VAR) using monthly data from January 1997 to December 2010. The pass-through effects are calculated by means of accumulated impulse response functions to a recursively identified exchange rate shock. The results show that the exchange rate pass-through to import prices is complete, but it declines along the distribution chain in such a way that the impact on consumer prices is below 20 percent. Moreover, we find that the exchange rate pass-through seems to have decreased substantially from 2001 onwards, which coincides with the adoption of an inflation targeting regime by Banco de Mexico.

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File URL: http://www.banxico.org.mx/publicaciones-y-discursos/publicaciones/documentos-de-investigacion/banxico/%7B57637DF3-6EBA-7675-B248-B31A63615E3D%7D.pdf
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Bibliographic Info

Paper provided by Banco de México in its series Working Papers with number 2011-12.

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Date of creation: Nov 2011
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Handle: RePEc:bdm:wpaper:2011-12

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Web page: http://www.banxico.org.mx
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Keywords: Exchange rate pass-through; import price; consumer price; distribution chain; inflation.;

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