Arbeitspapier
Shocks versus structure: Explaining differences in exchange rate pass-through across countries and time
We show that exchange rate pass-through to consumer prices varies not only across countries, but also over time. Previous literature has highlighted the role of an economy's "structure" - such as its inflation volatility, inflation rate, use of foreign currency invoicing, and openness - in explaining these variations in pass-through. We use a sample of 26 advanced and emerging economies to show which of these structural variables are significant in explaining not only differences in pass-through across countries, but also over time. The "shocks" leading to exchange rate movements can also explain variations in pass through over time. For example, exchange rate movements caused by monetary policy shocks consistently correspond to significantly higher estimates of pass-through than those caused by demand shocks. The role of "shocks" in driving pass-through over time can be as large as that of structural variables, and even larger for some countries. As a result, forecasts predicting how a given exchange rate movement will impact inflation at a specific point in time should take into account not just an economy's "structure", but also the "shocks".
- Language
-
Englisch
- Bibliographic citation
-
Series: External MPC Unit Discussion Paper ; No. 50
- Classification
-
Wirtschaft
Price Level; Inflation; Deflation
Prices, Business Fluctuations, and Cycles: Forecasting and Simulation: Models and Applications
Monetary Policy
Macroeconomic Aspects of International Trade and Finance: Forecasting and Simulation: Models and Applications
- Subject
-
Pass-through
exchange rate
price level
inflation
monetary policy
- Event
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Geistige Schöpfung
- (who)
-
Forbes, Kristin
Hjortsoe, Ida
Nenova, Tsvetelina
- Event
-
Veröffentlichung
- (who)
-
Bank of England, External Monetary Policy Committee Unit
- (where)
-
London
- (when)
-
2017
- Handle
- Last update
-
10.03.2025, 11:43 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Forbes, Kristin
- Hjortsoe, Ida
- Nenova, Tsvetelina
- Bank of England, External Monetary Policy Committee Unit
Time of origin
- 2017
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