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Conditional exchange rate pass-through: evidence from Sweden

Author

Listed:
  • Corbo, Vesna

    () (Monetary Policy Department, Central Bank of Sweden)

  • Di Casola, Paola

    () (Monetary Policy Department, Central Bank of Sweden)

Abstract

The pass-through from exchange rate changes to inflation differs depending on the underlying shock. This paper quantifies the conditional exchange rate pass-through (CERPT) to prices, i.e. the change in prices relative to that in the exchange rate following a certain exogenous shock, with a structural econometric approach using data for Sweden, a small economy that is very open to trade. We find that the pass-through to consumer prices following an exogenous exchange rate shock is rather small. Importantly, this shock is not the most important driver of exchange rate uctuations, unlike what standard structural macroeconomic models would indicate. For Sweden, the CERPT is negative not only for domestic but also for global demand shocks. The estimated combination of shocks with positive and negative CERPT implies that the average pass-through to consumer prices is roughly zero.

Suggested Citation

  • Corbo, Vesna & Di Casola, Paola, 2018. "Conditional exchange rate pass-through: evidence from Sweden," Working Paper Series 352, Sveriges Riksbank (Central Bank of Sweden).
  • Handle: RePEc:hhs:rbnkwp:0352
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    More about this item

    Keywords

    Exchange rate; pass-through; consumer prices; import prices; monetary policy; SVAR.;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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