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Exchange Rate Pass-Through to Consumer Prices: A European Perspective

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  • Felix P. Hüfner
  • Michael Schröder

Abstract

We study the pass-through of exchange rate changes to consumer prices for the euro area by estimating vector error correction models for Germany, France, Italy, the Netherlands and Spain. Using the weights of the Harmonized Index of Consumer Prices (HICP) we compute a weighted average of the country results for the euro area. We find that in response to a ten percent depreciation of the euro nominal effective exchange rate index, the HICP tends to increase by 0,4 percent after 12 months. The total effect amounts to 0,8 percent and the adjustment of consumer prices is completed after three years.
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Suggested Citation

  • Felix P. Hüfner & Michael Schröder, 2003. "Exchange Rate Pass-Through to Consumer Prices: A European Perspective," Aussenwirtschaft, University of St. Gallen, School of Economics and Political Science, Swiss Institute for International Economics and Applied Economics Research, vol. 58(03), pages 383-412, September.
    • Handle: RePEc:usg:auswrt:2003:58:03:383-412
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    Citations

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    Cited by:

    1. Victoria V. Dobrynskaya, 2008. "The Monetary and Exchange Rate Policy of the Central Bank of Russia under Asymmetrical Price Rigidity," Journal of Innovation Economics, De Boeck Université, vol. 0(1), pages 29-62.
    2. Igor Velickovski & Geoffrey Thomas Pugh, 2011. "Constraints on exchange rate flexibility in transition economies: a meta-regression analysis of exchange rate pass-through," Applied Economics, Taylor & Francis Journals, vol. 43(27), pages 4111-4125.
    3. Brissimis, Sophocles N. & Kosma, Theodora, 2005. "Market power, innovative activity and exchange rate pass-through in the euro area," Working Paper Series 531, European Central Bank.
    4. Nidhaleddine Ben Cheikh & Christophe Rault, 2016. "Recent estimates of exchange rate pass-through to import prices in the euro area," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 152(1), pages 69-105, February.
    5. Masoumi, Esmat & Tehranchian, Amir Mansor, 2015. "The Impact of Exchange Rate Misalignment on the Persistence of Inflation in Iran," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 10(2), pages 45-69, January.
    6. NAGHDI Yazdan & KAGHAZIAN Soheila, 2015. "The Effects Of Asymmetric Transmission Of Exchange Rate On Inflation In Iran:Application Of Threshold Models," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 10(2), pages 99-113, August.
    7. repec:ebl:ecbull:v:15:y:2005:i:5:p:1-10 is not listed on IDEAS
    8. Beirne, John & Bijsterbosch, Martin, 2011. "Exchange rate pass-through in central and eastern European EU Member States," Journal of Policy Modeling, Elsevier, vol. 33(2), pages 241-254, March.
    9. Antonio Forte, 2009. "The pass-through effect: a twofold analysis," EERI Research Paper Series EERI_RP_2009_08, Economics and Econometrics Research Institute (EERI), Brussels.
    10. Peter Rowland, 2003. "Exchange Rate Pass-Throught to Domestic Prices: The Case of Colombia," Borradores de Economia 254, Banco de la Republica de Colombia.
    11. Mirdala, Rajmund, 2009. "Interest rate transmission mechanism of the monetary policy in the selected EMU candidate countries (SVAR approach)," MPRA Paper 14072, University Library of Munich, Germany.
    12. Martins Bitans, 2004. "Pass-Through of Exchange Rates to Domestic Prices in East European Countries and the Role of Economic Enviroment," Working Papers 2004/04, Latvijas Banka.
    13. Faik Bilgili & Sevda Kuşkaya & Pelin Gençoğlu & Fatma Ünlü & Cosimo Magazzino, 2024. "Exchange rate pass-through at high and low frequencies in Turkey: a continuous wavelet transform model approach," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 13(1), pages 1-23, December.
    14. Peter Rowland, 2003. "Exchange Rate Pass-Through To Domestic Prices: The Case Of Colombia," Borradores de Economia 2683, Banco de la Republica.

    More about this item

    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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