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Pass-through of exchange rates and import prices to domestic inflation in some industrialised economies

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  • J. McCarthy

Abstract

This paper examines the impact of exchange rates and import prices on domestic PPI and CPI in selected industrialised economies. The empirical model is a VAR incorporating a distribution chain of pricing. Impulse responses and variance decompositions indicate that these external factors have a modest effect on domestic price inflation over the post-Bretton Woods era. The pass-through is somewhat stronger in countries with a larger import share. A historical decomposition over 1996-98 indicates, however, that external factors have had a sizable disinflationary effect in most of the countries during the past couple of years. Estimating the model using post-1982 data has little effect on these conclusions.

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  • J. McCarthy, 1999. "Pass-through of exchange rates and import prices to domestic inflation in some industrialised economies," BIS Working Papers 79, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:79
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