The Pass-through from Depreciation to Inflation: Chile 1986-2001
AbstractA microeconomic model of imperfect Cournot competition is used to derive an explicit endogenous relationship between price level and the nominal exchange rate. We obtain a markup that varies endogenously with consumer real income. Using the model, the estimated passthrough - namely the impact of devaluation on inflation - ranges between 9-11% in the short run and between 21-32% in the long run for the period 1986-2001. However, the data supports a structural change in 1991, after which the pass-through coefficient decline significantly. Moreover, contrary to conventional wisdom, we find no evidence of procyclical pass-through.
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Bibliographic InfoPaper provided by University of Chile, Department of Economics in its series Working Papers with number wp202.
Date of creation: Dec 2003
Date of revision:
Exchange rate; Devaluation; Pass-through; Inflation; Endogenous Mark-up; Oligoplistic Cournot Competition.;
Other versions of this item:
- Carlos Noton Norambuena, 2003. "The pass-through from depreciation to inflation: Chile 1986-2001," Estudios de Economia, University of Chile, Department of Economics, vol. 30(1 Year 20), pages 133-155, June.
- F31 - International Economics - - International Finance - - - Foreign Exchange
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
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