Revisiting the exchangerate pass‐through : a general equilibrium perspective
Abstract: A large literature estimates the exchange-rate pass-through to prices (ERPT) using reducedform approaches. The results from these studies are an important input at Central Banks. We study the usefulness of these empirical measures for actual monetary policy analysis and decision making,...
Guardado en:
| Autores principales: | , |
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| Formato: | Documento de trabajo |
| Lenguaje: | Inglés |
| Publicado: |
Pontificia Universidad Católica Argentina. Facultad de Ciencias Económicas. Departamento de Investigación Francisco Valsecchi
2020
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| Materias: | |
| Acceso en línea: | https://repositorio.uca.edu.ar/handle/123456789/9974 |
| Aporte de: |
| Sumario: | Abstract: A large literature estimates the exchange-rate pass-through to prices (ERPT) using reducedform
approaches. The results from these studies are an important input at Central Banks. We study
the usefulness of these empirical measures for actual monetary policy analysis and decision making,
emphasizing two main shortcomings that arise naturally from a general equilibrium perspective.
First, while the empirical literature computes a single ERPT measure, in a general equilibrium
model the evolution of the exchange rate and prices will differ depending on the shock hitting
the economy. Accordingly, we distinguish between conditional and unconditional ERPT measures,
showing that they can lead to very different interpretations. Second, in a general equilibrium model
the ERPT crucially depends on the expected behavior of monetary policy; although the empirical
literature cannot account for this. As a result, results from this literature might provide a misleading
guide for monetary policy. We highlight the quantitative relevance of these with a DSGE model of
a small and open economy with sectoral distinctions, real and nominal rigidities, and a variety of
driving forces; estimated using Chilean data. |
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