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The Exchange Rate and Consumer Prices

Author

Listed:
  • Elaine Chung

    (Reserve Bank of Australia)

  • Marion Kohler

    (Reserve Bank of Australia)

  • Christine Lewis

    (Reserve Bank of Australia)

Abstract

This article reviews the empirical evidence on exchange rate pass-through to consumer prices in Australia over the inflation-targeting period. It finds that pass-through is relatively low at the aggregate level but is faster and larger for the prices of manufactured goods, which are often imported. There is some evidence that over the past decade exchange rate movements have been flowing through more quickly to retail prices for this subset of highly tradable goods. Looking ahead, the growth of the internet with the greater ability of households to compare prices and to buy from overseas are likely to result in smaller cross-country price differentials and more rapid pass-through from the exchange rate to prices.

Suggested Citation

  • Elaine Chung & Marion Kohler & Christine Lewis, 2011. "The Exchange Rate and Consumer Prices," RBA Bulletin, Reserve Bank of Australia, pages 9-16, September.
  • Handle: RePEc:rba:rbabul:sep2011-02
    as

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    File URL: http://www.rba.gov.au/publications/bulletin/2011/sep/pdf/bu-0911-2.pdf
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    References listed on IDEAS

    as
    1. David Norman & Anthony Richards, 2010. "Modelling Inflation in Australia," RBA Research Discussion Papers rdp2010-03, Reserve Bank of Australia.
    2. David Gruen & Adrian Pagan & Christopher Thompson, 1999. "The Phillips Curve in Australia," RBA Research Discussion Papers rdp1999-01, Reserve Bank of Australia.
    3. McKibbin, Warwick J, 1988. "Policy Analysis with the MSG2 Model," Australian Economic Papers, Wiley Blackwell, pages 126-150.
    4. Gruen, David & Pagan, Adrian & Thompson, Christopher, 1999. "The Phillips curve in Australia," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 223-258, October.
    5. Jeannine Bailliu & Wei Dong & John Murray, 2010. "Has Exchange Rate Pass-Through Really Declined? Some Recent Insights from the Literature," Bank of Canada Review, Bank of Canada, vol. 2010(Autumn), pages 1-8.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Alexander Beames & Michael Kouparitsas, 2015. "Modelling Australia’s imports of goods and services," Treasury Working Papers 2015-02, The Treasury, Australian Government, revised Jun 2015.
    2. repec:rba:rbabul:sep2017-01 is not listed on IDEAS
    3. Manalo, Josef & Perera, Dilhan & Rees, Daniel M., 2015. "Exchange rate movements and the Australian economy," Economic Modelling, Elsevier, vol. 47(C), pages 53-62.
    4. Jared Bullen & Michael Kouparitsas & Michal Krolikowski, 2014. "Long run forecasts of Australia’s terms of trade," Treasury Working Papers 2014-01, The Treasury, Australian Government, revised May 2014.

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