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Pass-through of external shocks to euro area inflation

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Author Info
Elke Hahn () (ifo Institue fur Wirtschaftsforschung, Poschingerstr. 5, 81679 Munich, Germany.)
Abstract

This paper investigates the pass-through of external shocks, i.e. oil price shocks, exchange rate shocks, and non-oil import price shocks to euro area inflation at different stages of distribution (import prices, producer prices and consumer prices). The analysis is based on a VAR model that includes the distribution chain of pricing. According to our results the pass-through is largest and fastest for non-oil import price shocks, followed by exchange rate shocks and oil price shocks. The size and the speed of the pass-through of these shocks decline along the distribution chain. External shocks explain a large fraction of the variance in all price indices. They seem to have contributed largely to inflation in the euro area since the start of the European Monetary Union. The results on the size and the speed of the pass-through in the euro area appeared to be robust over time and different identification schemes. JEL Classification: C32; E31.

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Paper provided by European Central Bank in its series Working Paper Series with number 243.

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Length: 61 pages
Date of creation: Jul 2003
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Handle: RePEc:ecb:ecbwps:20030243

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Related research
Keywords: Pass-through; exchange rate; oil price; import price; euro area inflation.;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Alistair Dieppe & Thomas Warmedinger, 2007. "Modelling intra- and extra-area trade substitution and exchange rate pass-through in the euro area," Working Paper Series 760, European Central Bank. [Downloadable!]
  2. Stahn, Kerstin, 2009. "Changes in import pricing behaviour: the case of Germany," Discussion Paper Series 1: Economic Studies 2009,14, Deutsche Bundesbank, Research Centre. [Downloadable!]
  3. Sek, Siok Kun & Kapsalyamova, Zhanna, 2008. "Exchange rate pass-through and volatility: Impacts on domestic prices in four Asian countries," MPRA Paper 11130, University Library of Munich, Germany, revised 26 Oct 2008. [Downloadable!]
  4. Takatoshi Ito & Kiyotaka Sato, 2006. "Exchange Rate Changes and Inflation in Post-Crisis Asian Economies: VAR Analysis of the Exchange Rate Pass-Through," Discussion papers 06018, Research Institute of Economy, Trade and Industry (RIETI). [Downloadable!]
    Other versions:
  5. Martins Bitans, 2005. "Pass-Through of Exchange Rates to Domestic Prices in East European Countries and the Role of Economic Enviroment," Working Papers 2004/04, Latvijas Banka. [Downloadable!]
  6. Ramón María-Dolores, 2008. "Exchange rate pass-through in new Member States and candidate countries of the EU," Banco de España Working Papers 0822, Banco de España. [Downloadable!]
  7. Hamid Faruqee, 2004. "Exchange Rate Pass-Through in the Euro Area: The Role of Asymmetric Pricing Behavior," IMF Working Papers 04/14, International Monetary Fund. [Downloadable!]
  8. Elke Hahn, 2007. "The impact exchange rate shocks on sectoral activity and prices in the euro area," Working Paper Series 796, European Central Bank. [Downloadable!]
  9. Oxana Babetskaia-Kukharchuk, 2007. "Transmission of Exchange Rate Shocks into Domestic Inflation: The Case of the Czech Republic," Working Papers 2007/12, Czech National Bank, Research Department. [Downloadable!]
    Other versions:
  10. Jonathan McCarthy, 2007. "Pass-Through of Exchange Rates and Import Prices to Domestic Inflation in Some Industrialized Economies," Eastern Economic Journal, Eastern Economic Association, vol. 33(4), pages 511-537, Fall. [Downloadable!]
    Other versions:
  11. Michele Ca’ Zorzi & Elke Hahn & Marcelo Sánchez, 2007. "Exchange rate pass-through in emerging markets," Working Paper Series 739, European Central Bank. [Downloadable!]
    Other versions:
  12. Takatoshi Ito & Yuri N. Sasaki & Kiyotaka Sato, 2005. "Pass-Through of Exchange Rate Changes and Macroeconomic Shocks to Domestic Inflation in East Asian Countries," Discussion papers 05020, Research Institute of Economy, Trade and Industry (RIETI). [Downloadable!]
  13. Forte, Antonio, 2009. "The pass-through effect: a twofold analysis," MPRA Paper 16527, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  14. Carlos Cortinhas, 2007. "Exchange Rate Pass-Through in ASEAN: Implications for the Prospects of Monetary Integration in the Region," NIPE Working Papers 2/2007, NIPE - Universidade do Minho. [Downloadable!]
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