Monetary Policy Credibility and Exchange Rate Pass-Through

Author/Editor:

Yan Carriere-Swallow ; Bertrand Gruss ; Nicolas E Magud ; Fabian Valencia

Publication Date:

December 13, 2016

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 2016/240

Subject:

Consumer prices Exchange rate pass-through Foreign exchange Import prices Inflation Nominal effective exchange rate Prices

English

Publication Date:

December 13, 2016

ISBN/ISSN:

9781475560312/1018-5941

Stock No:

WPIEA2016240

Pages:

33

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