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Monetary Policy Credibility and Exchange Rate Pass-Through

Author

Listed:
  • Yan Carriere-Swallow
  • Bertrand Gruss
  • Nicolas E Magud
  • Fabian Valencia

Abstract

A long-standing conjecture in macroeconomics is that recent declines in exchange rate pass-through are in part due to improved monetary policy performance. In a large sample of emerging and advanced economies, we find evidence of a strong link between exchange rate pass-through to consumer prices and the monetary policy regime’s performance in delivering price stability. Using input-output tables, we decompose exchange rate pass-through to consumer prices into a component that reflects the adjustment of imported goods at the border, and another that captures the response of all other prices. We find that price stability and central bank credibility have reduced the second component.

Suggested Citation

  • Yan Carriere-Swallow & Bertrand Gruss & Nicolas E Magud & Fabian Valencia, 2016. "Monetary Policy Credibility and Exchange Rate Pass-Through," IMF Working Papers 16/240, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:16/240
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    References listed on IDEAS

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    Cited by:

    1. World Bank Group, 2017. "Russia Economic Report, May 2017," World Bank Other Operational Studies 27522, The World Bank.
    2. repec:eee:ecanpo:v:59:y:2018:i:c:p:116-126 is not listed on IDEAS
    3. Issler, João Victor & Soares, Ana Flávia, 2019. "Central Bank credibility and inflation expectations: a microfounded forecasting approach," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 812, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    4. Mariarosaria Comunale, 2019. "An investigation of the exchange rate pass-through in the Baltic states," CAMA Working Papers 2019-60, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    5. López-Villavicencio, Antonia & Mignon, Valérie, 2017. "Exchange rate pass-through in emerging countries: Do the inflation environment, monetary policy regime and central bank behavior matter?," Journal of International Money and Finance, Elsevier, vol. 79(C), pages 20-38.
    6. Yan Carriere-Swallow & Nicolas E Magud & Juan Yepez, 2018. "No Pain, All Gain? Exchange Rate Flexibility and the Expenditure-Switching Effect," IMF Working Papers 18/213, International Monetary Fund.
    7. Renzo Castellares & Hiroshi Toma, 2019. "Effects of a mandatory local currency pricing law on the exchange rate pass-through," BIS Working Papers 785, Bank for International Settlements.
    8. Forbes, Kristin & Hjortsoe, Ida & Nenova, Tsvetelina, 2017. "Shocks versus structure: explaining differences in exchange rate pass-through across countries and time," Discussion Papers 50, Monetary Policy Committee Unit, Bank of England.

    More about this item

    Keywords

    Price stabilization; Monetary policy; Exchange rate pass-through; Emerging markets; Consumer prices; Developed countries; Cross country analysis; monetary policy credibility;

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