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A new look at exchange rate pass-through in the G-7 countries

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  • Jiménez-Rodríguez, Rebeca
  • Morales-Zumaquero, Amalia

Abstract

This paper analyzes the exchange rate pass-through (ERPT) to domestic prices (consumer and producer prices), and to import prices for the G-7 countries. It is our aim to answer three key questions with strong economic policy implications: (i) is there a lower rate of ERPT in countries with an increased emphasis in monetary policy based on price stability?; (ii) is there a significant connection between ERPT and inflation volatility?; and (iii) do exchange rate regimes have a role to explain the ERPT? Our findings suggest that: (i) Taylor's hypothesis holds; (ii) there is a robust and positive significant connection between ERPT and inflation volatility; and (iii) ERPT depends on the exchange rate regimes.

Suggested Citation

  • Jiménez-Rodríguez, Rebeca & Morales-Zumaquero, Amalia, 2016. "A new look at exchange rate pass-through in the G-7 countries," Journal of Policy Modeling, Elsevier, vol. 38(5), pages 985-1000.
  • Handle: RePEc:eee:jpolmo:v:38:y:2016:i:5:p:985-1000
    DOI: 10.1016/j.jpolmod.2016.06.007
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    Keywords

    Exchange rate pass-through; Monetary policy; Exchange rate regimes;

    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

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