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Unequal Exchange Rate Pass-Through Across Income Groups

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  • Yilmazkuday, Hakan

Abstract

Exchange rate pass-through (ERPT) into prices and into income loss are shown to be enough to calculate ERPT into welfare loss using implications of a simple model. These ERPT measures are estimated at the good level using a unique micro-price data set from Turkey, and they are combined with income-group-specific expenditure shares at the good level to obtain aggregate-level ERPT measures for alternative income groups. An exchange rate shock resulting in a real depreciation of 1% is shown to decrease welfare by about 0.80% for the average-income consumer, while this estimate ranges between 0.73% and 0.83% for consumers in the lowest- and highest-income quintiles, respectively, suggesting evidence for redistributive effects of an exchange rate shock. Using micro prices has further resulted in showing that traded, nondurable, flexible-price, or income-elastic goods contribute more to ERPT into welfare loss for the average-income consumer, suggesting important policy implications for filtering out the noise in the measurement of aggregate-level prices.

Suggested Citation

  • Yilmazkuday, Hakan, 2022. "Unequal Exchange Rate Pass-Through Across Income Groups," Macroeconomic Dynamics, Cambridge University Press, vol. 26(3), pages 682-725, April.
    • Handle: RePEc:cup:macdyn:v:26:y:2022:i:3:p:682-725_5
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    Cited by:

    1. Yilmazkuday, Hakan, 2022. "Drivers of Turkish inflation," The Quarterly Review of Economics and Finance, Elsevier, vol. 84(C), pages 315-323.
    2. Crucini, Mario J. & Yilmazkuday, Hakan, 2014. "Understanding long-run price dispersion," Journal of Monetary Economics, Elsevier, vol. 66(C), pages 226-240.
    3. Hakan Yilmazkuday, 2025. "Unequal inflationary effects of tariffs across socio-demographic groups," International Economics and Economic Policy, Springer, vol. 22(4), pages 1-24, October.
    4. Boitier, Alvaro & Stracca, Livio, 2025. "The unexpected upside of depreciation: bridging Europe’s income divide," Working Paper Series 3067, European Central Bank.

    More about this item

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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