Advanced Search
MyIDEAS: Login

Exchange Rate Pass-Through in a Structural Small Open Economy Model: How Important is the Conduct of Monetary Policy

Contents:

Author Info

  • Stephen Murchison

Abstract

Several authors have presented reduced-form evidence suggesting that the degree of exchange-rate pass-through to the consumer price index has declined in Canada since the 1970s and is currently close to zero. Authors such as Taylor (2000) suggest that this is due to a change in the conduct of monetary policy. Specifically, if monetary policy is seen to be responding more aggressively to shocks that affect inflation then the expected persistence of these shocks will decline and by consequence, so will the degree of pass-through to consumer prices. This paper investigates the extent to which monetary policy, under commitment to inflation targeting, can influence exchange rate pass-through in a dynamic stochastic general equilibrium model of a small open economy. We begin by defining pass-through in the context of a reduced-form Phillips curve and then compute numerically the relationship between pass-through and the parameters of a simple policy rule. We then investigate the extent to which reasonable changes in the aggressiveness of policy, such as those observed since the 1970s in Canada, could account for the observed decline in pass-through. The model presented here assumes that imports serve as an input to the home economy's production process. Pass-through of the exchange rate to import prices is incomplete in the short run due to the existence of multi-period price contracts denominated in the home currency.

Download Info

To our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.

Bibliographic Info

Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2004 with number 207.

as in new window
Length:
Date of creation: 11 Aug 2004
Date of revision:
Handle: RePEc:sce:scecf4:207

Contact details of provider:
Email:
Web page: http://comp-econ.org/
More information through EDIRC

Related research

Keywords: Exchange rate pass through; dsge models; monetary policy;

Find related papers by JEL classification:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:sce:scecf4:207. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.