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Exchange rate pass-through into euro area inflation. An estimated structural model

Author

Listed:
  • Lorenzo Burlon
  • Alessandro Notarpietro

    (Bank of Italy)

  • Massimiliano Pisani

    (Bank of Italy)

Abstract

We evaluate the exchange rate pass-through (ERPT) into euro area (EA) inflation by estimating an open economy New Keynesian model with Bayesian methods. In the model ERPT is incomplete because of local currency pricing and distribution services, with the latter allowing to distinguish between ERPT at the border and ERPT at the consumer level. Our main results are the following ones. First, ERPT into EA prices is, in general, high. Second, it is particularly high in correspondence of exchange rate and monetary policy shocks. Third, the EA monetary stance is relevant for ERPT; in particular, ERPT is higher if the stance is accommodative in correspondence of expansionary demand shocks.

Suggested Citation

  • Lorenzo Burlon & Alessandro Notarpietro & Massimiliano Pisani, 2018. "Exchange rate pass-through into euro area inflation. An estimated structural model," Temi di discussione (Economic working papers) 1192, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_1192_18
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    References listed on IDEAS

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    Cited by:

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    2. Eva Ortega & Chiara Osbat, 2020. "Exchange rate pass-through in the euro area and EU countries," Occasional Papers 2016, Banco de España.
    3. Alessandro Cantelmo & Pietro Cova & Alessandro Notarpietro & Massimiliano Pisani, 2022. "Make-up strategies and exchange rate pass-through in a low-interest-rate environment," Temi di discussione (Economic working papers) 1398, Bank of Italy, Economic Research and International Relations Area.
    4. Ivan Khotulev, 2020. "Shock-Dependent Exchange Rate Pass-Through in Russia," Bank of Russia Working Paper Series note20, Bank of Russia.
    5. de Walque, Gregory & Lejeune, Thomas & Rannenberg, Ansgar & Wouters, Raf, 2023. "Low pass-through and international synchronization in general equilibrium: Reassessing vertical integration," Journal of International Economics, Elsevier, vol. 140(C).
    6. Andrea De Polis & Mario Pietrunti, 2019. "Exchange rate dynamics and unconventional monetary policies: it�s all in the shadows," Temi di discussione (Economic working papers) 1231, Bank of Italy, Economic Research and International Relations Area.

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    More about this item

    Keywords

    exchange rate; import prices; pass-through; monetary policy; euro area.;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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