An input–output model of exchange-rate pass-through |
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Authors: | Osman Aydo?u? Ça?açan De?er Gülçin Gürel Günal |
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Institution: | Department of Economics, Ege University, Izmir, Turkey |
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Abstract: | The impact of the exchange rate on price formation is often debated through a mechanism called the exchange-rate pass-through. Studies of the pass-through generally rely on econometric analysis implemented on time series data. This study examines pass-through to the domestic price level through an input–output model. The proposed model is implemented on a sample of countries, and a number of different variables connected to the pass-through are examined. A comparison across countries and sectors highlights the importance of the construction sector in price formation. National income is negatively related to the pass-through. A high dependence on intermediate imports implies higher pass-through. Price level volatility and pass-through are positively related; whereas a country’s monetary policy stance has no apparent effect. The effect of exchange-rate volatility is unclear; it is negative for the real effective exchange rate, the connection is very weak in the case of the nominal exchange rate. |
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Keywords: | Input–output analysis cost-push price formation exchange-rate pass-through |
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