Pass-Through of Exchange Rates and Import Prices to Domestic Inflation in Some Industrialized Economies

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Staff Reports

Pass-Through of Exchange Rates and Import Prices to Domestic Inflation in Some Industrialized Economies

September 2000 Number 111

JEL classification: E31, F41, F31

Author: Jonathan McCarthy

This paper examines the impact of exchange rates and import prices on the domestic producer price index and consumer price index in selected industrialized economies. The empirical model is a vector autoregression incorporating a distribution chain of pricing. When the model is estimated over the post-Bretton Woods era, impulse responses indicate that exchange rates have a modest effect on domestic price inflation while import prices have a stronger effect. Pass-through is larger in countries with a larger import share and more persistent exchange rates and import prices. Over 1996-98, these external factors have had a sizable disinflationary effect in many of the countries, but not in the United States. Estimating the model using post-1982 data has little effect on these conclusions.

Available only in PDF PDF

52 pages / 537 kb

For a published version of this report, see Jonathan McCarthy, "Pass-Through of Exchange Rates and Import Prices to Domestic Inflation in Some Industrialized Economies," Eastern Economic Journal 33, no.4 (Fall 2007): 511-37.

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