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Exchange rate pass-through to consumer prices : a European perspective

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Author Info
Hüfner, Felix P.
Schröder, Michael

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Abstract

We study the pass-through of exchange rate changes to consumer prices for the euro area by estimating vector error correction models for Germany, France, Italy, the Netherlands and Spain. Using the weights of the Harmonized Index of Consumer Prices (HICP) we compute a weighted average of the country results for the euro area. We find that in response to a ten percent depreciation of the euro nominal effective exchange rate index, the HICP tends to increase by 0,4 percent after 12 months. The total effect amounts to 0,8 percent and the adjustment of consumer prices is completed after three years.

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Publisher Info
Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 02-20.

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Date of creation: 2002
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Handle: RePEc:zbw:zewdip:877

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Related research
Keywords: pass-through inflation exchange rate euro area

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Find related papers by JEL classification:
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
F31 - International Economics - - International Finance - - - Foreign Exchange
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

References listed on IDEAS
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  1. Kim, Ki-Ho, 1998. "US Inflation and the Dollar Exchange Rate: A Vector Error Correction Model," Applied Economics, Taylor and Francis Journals, vol. 30(5), pages 613-19, May. [Downloadable!] (restricted)
  2. George A. Kahn, 1987. "Dollar depreciation and inflation," Economic Review, Federal Reserve Bank of Kansas City, issue Nov, pages 32-49. [Downloadable!]
  3. Ilan Goldfajn & Sergio R.C. Werlang, 2000. "The pass-through from depreciation to inflation : a panel study," Textos para discussão 423, Department of Economics PUC-Rio (Brazil). [Downloadable!]
  4. Kenny, Geoff & McGettigan, Donal, 1998. "Exchange Rates and Import Prices for a Small Open Economy: The Case of Ireland," Applied Economics, Taylor and Francis Journals, vol. 30(9), pages 1147-55, September. [Downloadable!] (restricted)
  5. 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:
  6. Dornbusch, Rudiger, 1987. "Exchange Rates and Prices," American Economic Review, American Economic Association, vol. 77(1), pages 93-106, March.
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  7. Ilan Goldfajn & Sérgio Ribeiro da Costa Werlang, 2000. "The Pass-through from Depreciation to Inflation: A Panel Study," Working Papers Series 5, Central Bank of Brazil, Research Department. [Downloadable!]
  8. Menon, Jayant, 1995. " Exchange Rate Pass-Through," Journal of Economic Surveys, Blackwell Publishing, vol. 9(2), pages 197-231, June.
  9. 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!]
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  10. Kim, Yoonbai, 1991. "External Adjustments and Exchange Rate Flexibility: Some Evidence from U.S. Data," The Review of Economics and Statistics, MIT Press, vol. 73(1), pages 176-81, February. [Downloadable!] (restricted)
  11. Newey, Whitney K & West, Kenneth D, 1994. "Automatic Lag Selection in Covariance Matrix Estimation," Review of Economic Studies, Blackwell Publishing, vol. 61(4), pages 631-53, October. [Downloadable!] (restricted)
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  12. Sven W. Arndt & J. David Richardson, 1988. "Real-Financial Linkages Among Open Economies," NBER Working Papers 2230, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Pantula, Sastry G & Gonzalez-Farias, Graciela & Fuller, Wayne A, 1994. "A Comparison of Unit-Root Test Criteria," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(4), pages 449-59, October.
  14. Sinimaaria Ranki, 2000. "Does the Euro Exchange Rate Matter ?," Discussion Papers 729, The Research Institute of the Finnish Economy. [Downloadable!]
  15. Stefan Gerlach & Lars E.O. Svensson, 2000. "Money and Inflation in the Euro Area: A Case for Monetary Indicators?," NBER Working Papers 8025, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  16. Bernanke, Ben S. & Mihov, Ilian, 1997. "What does the Bundesbank target?," European Economic Review, Elsevier, vol. 41(6), pages 1025-1053, June. [Downloadable!] (restricted)
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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. Peter Rowland, 2003. "Exchange Rate Pass-Through To Domestic Prices: The Case Of Colombia," BORRADORES DE ECONOMIA 002683, BANCO DE LA REPÚBLICA. [Downloadable!]
  2. Peter Rowland, . "Exchange Rate Pass-Throught to Domestic Prices: The Case of Colombia," Borradores de Economia 254, Banco de la Republica de Colombia. [Downloadable!]
  3. Sophocles N. Brissimis & Theodora S. Kosma, 2005. "Market power, innovative activity and exchange rate pass-through in the euro area," Working Paper Series 531, European Central Bank. [Downloadable!]
  4. Hamid Faruqee, 2006. "Exchange Rate Pass-Through in the Euro Area," IMF Staff Papers, Palgrave Macmillan Journals, vol. 53(1), pages 4. [Downloadable!] (restricted)
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