IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Has Exchange Rate Pass-Through Really Declined in Canada?

  • Hafedh Bouakez
  • Nooman Rebei

Several empirical studies suggest that exchange rate pass-through has declined in recent years in industrialized countries. Results for Canada also indicate that, in the 1990s, import and consumer prices became less responsive to exchange rate movements. These findings are based on reducedform regressions that are typically motivated by partial-equilibrium models of pricing. Bouakez and Rebei instead use a structural, general-equilibrium approach to test the premise that exchange rate pass-through has decreased in Canada. Their approach consists in estimating a dynamic stochastic general-equilibrium model for Canada over two subsamples, which cover the periods before and after the Bank's adoption of inflation targeting. The authors then use impulse-response analysis to assess the stability of exchange rate pass-through across the two subsamples. Their results indicate that pass-through to Canadian import prices has been rather stable, while passthrough to Canadian consumer prices has declined in recent years. Counterfactual experiments reveal that the change in monetary policy regime is largely responsible for this decline.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.bankofcanada.ca/wp-content/uploads/2010/02/wp05-29.pdf
Download Restriction: no

Paper provided by Bank of Canada in its series Working Papers with number 05-29.

as
in new window

Length: 41 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:bca:bocawp:05-29
Contact details of provider: Postal: 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada
Phone: 613 782-8845
Fax: 613 782-8874
Web page: http://www.bank-banque-canada.ca/

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  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. Michael B. Devereux & Charles Engel, 2003. "Monetary Policy in the Open Economy Revisited: Price Setting and Exchange-Rate Flexibility," Review of Economic Studies, Wiley Blackwell, vol. 70(4), pages 765-783, October.
  3. Betts, Caroline & Devereux, Michael B., 2000. "Exchange rate dynamics in a model of pricing-to-market," Journal of International Economics, Elsevier, vol. 50(1), pages 215-244, February.
  4. Michael B. Devereux & Charles Engel & Peter E. Storgaard, 2003. "Endogenous Exchange Rate Pass-through when Nominal Prices are Set in Advance," IEHAS Discussion Papers 0304, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  5. Sutherland, Alan, 2002. "Incomplete Pass-Through and the Welfare Effects of Exchange Rate Variability," CEPR Discussion Papers 3431, C.E.P.R. Discussion Papers.
  6. 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.
  7. Maral Kichian, 2001. "On the Nature and the Stability of the Canadian Phillips Curve," Working Papers 01-4, Bank of Canada.
  8. Ingram, Beth Fisher & Kocherlakota, Narayana R. & Savin, N. E., 1994. "Explaining business cycles: A multiple-shock approach," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 415-428, December.
  9. Tommaso Monacelli, 2003. "Monetary Policy in a Low Pass-Through Environment," Working Papers 228, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  10. Kollman, R., 1996. "The Exchange Rate in a Dynamic-Optimizing Current Account Model with Nominal Rigidities: a Quantitative Investigation," Cahiers de recherche 9614, Universite de Montreal, Departement de sciences economiques.
  11. Giancarlo Corsetti & Paolo Pesenti, 2001. "International dimensions of optimal monetary policy," Staff Reports 124, Federal Reserve Bank of New York.
  12. Jeannine Bailliu & Hafedh Bouakez, 2004. "Exchange Rate Pass-Through in Industrialized Countries," Bank of Canada Review, Bank of Canada, vol. 2004(Spring), pages 19-28.
  13. Frank Smets & Raf Wouters, 2002. "Openness, imperfect exchange rate pass-through and monetary policy," Working Paper Research 19, National Bank of Belgium.
  14. Choudhri, Ehsan U. & Hakura, Dalia S., 2006. "Exchange rate pass-through to domestic prices: Does the inflationary environment matter?," Journal of International Money and Finance, Elsevier, vol. 25(4), pages 614-639, June.
  15. Rotemberg, Julio J, 1982. "Sticky Prices in the United States," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1187-1211, December.
  16. Adolfson, Malin, 2001. "Monetary Policy with Incomplete Exchange Rate Pass-Through," Working Paper Series 127, Sveriges Riksbank (Central Bank of Sweden).
  17. Steve Ambler & Ali Dib & Nooman Rebei, 2003. "Nominal Rigidities and Exchange Rate Pass-Through in a Structural Model of a Small Open Economy," Working Papers 03-29, Bank of Canada.
  18. Taylor, John B., 2000. "Low inflation, pass-through, and the pricing power of firms," European Economic Review, Elsevier, vol. 44(7), pages 1389-1408, June.
  19. Peter N. Ireland, 2001. "Endogenous Money or Sticky Prices?," Boston College Working Papers in Economics 499, Boston College Department of Economics.
  20. Engel, Charles, 2002. "The Responsiveness of Consumer Prices to Exchange Rates: A Synthesis of Some New Open Economy Macro Models," Manchester School, University of Manchester, vol. 70(0), pages 1-15, Supplemen.
  21. Bergin, Paul R., 2003. "Putting the 'New Open Economy Macroeconomics' to a test," Journal of International Economics, Elsevier, vol. 60(1), pages 3-34, May.
  22. Joseph E. Gagnon & Jane Ihrig, 2001. "Monetary policy and exchange rate pass-through," International Finance Discussion Papers 704, Board of Governors of the Federal Reserve System (U.S.).
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:bca:bocawp:05-29. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.