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Monetary policy and exchange rate pass-through This article is a U.S. Government work and is in the public domain in the U.S.A

Author

Listed:
  • Joseph E. Gagnon

    (Board of Governors of the Federal Reserve System, USA)

  • Jane Ihrig

    (Board of Governors of the Federal Reserve System, USA)

Abstract

The pass-through of exchange rate changes into domestic inflation appears to have declined in many countries since the 1980s. We develop a theoretical model that attributes the change in the rate of pass-through to increased emphasis on inflation stabilization by many central banks. This hypothesis is tested on 20 industrial countries between 1971 and 2003. We find widespread evidence of a robust and statistically significant link between estimated rates of pass-through and inflation variability. We also find evidence that observed monetary policy behaviour may be a factor in the declining rate of pass-through. Published in 2004 by John Wiley & Sons, Ltd.

Suggested Citation

  • Joseph E. Gagnon & Jane Ihrig, 2004. "Monetary policy and exchange rate pass-through This article is a U.S. Government work and is in the public domain in the U.S.A," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 9(4), pages 315-338.
    • Handle: RePEc:ijf:ijfiec:v:9:y:2004:i:4:p:315-338
    DOI: 10.1002/ijfe.253
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    References listed on IDEAS

    as
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