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The pass-through from depreciation to inflation: Chile 1986-2001

  • Carlos Noton Norambuena

    ()

A microeconomic model of imperfect Cournot competition is used to derive an explicit endogenous relationship between price level and the nominal exchange rate. We obtain a mark-up that varies endogenously with consumer real income. Using the model, the estimated pass-through –namely the impact of devaluation on inflation– ranges between 9-11% in the short run and between 21-32% in the long run for the period 1986-2001. However, the data supports a structural change in 1991, after which the pass-through coefficient declines significantly. Moreover, contrary to conventional wisdom, we find no evidence of procyclical pass-through.

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File URL: http://www.econ.uchile.cl/uploads/publicacion/24073db4-bb3e-4110-8cc6-21b98f6ebea3.pdf
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Article provided by University of Chile, Department of Economics in its journal Estudios de Economia.

Volume (Year): 30 (2003)
Issue (Month): 1 Year 2003 (June)
Pages: 133-155

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Handle: RePEc:udc:esteco:v:30:y:2003:i:1:p:133-155
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  1. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  2. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  3. Jose Manuel Campa & Linda S. Goldberg, 2002. "Exchange rate pass-through into import prices: a macro or micro phenomenon?," Staff Reports 149, Federal Reserve Bank of New York.
  4. Ilan Goldfajn & Sergio R.C. Werlang, 2000. "The pass-through from depreciation to inflation : a panel study," Textos para discussão 423, Department of Economics PUC-Rio (Brazil).
  5. Dornbusch, Rudiger, 1987. "Exchange Rates and Prices," American Economic Review, American Economic Association, vol. 77(1), pages 93-106, March.
  6. Kikuchi, Ayumi & Sumner, Michael, 1997. "Exchange-rate pass-through in Japanese export pricing," Discussion Papers in Economics 06/97, Department of Economics, University of Sussex.
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