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Pass-Through of Exchange Rates and Import Prices to Domestic Inflation in Some Industrialized Economies

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  • Jonathan McCarthy

    (Federal Reserve Bank of New York)

Abstract

This paper examines the impact of exchange rates and import prices on the domestic PPI and CPI in selected industrialized economies. The empirical model is a VAR incorporating a distribution chain of pricing. Estimating the model over the post-Bretton Woods era, our results indicate that exchange rates have a modest effect on domestic price inflation while import prices have a stronger effect. Pass-through is larger and has a more prominent role in the inflation process in countries with a larger import share and more persistent exchange rates and import prices.

Suggested Citation

  • Jonathan McCarthy, 2007. "Pass-Through of Exchange Rates and Import Prices to Domestic Inflation in Some Industrialized Economies," Eastern Economic Journal, Eastern Economic Association, vol. 33(4), pages 511-537, Fall.
  • Handle: RePEc:eej:eeconj:v:33:y:2007:i:4:p:511-537
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    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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