New Keynesian Exchange Rate Pass-Through

September 1, 2008

Preview Citation

Format: Chicago

David Cook, and Woon Gyu Choi. New Keynesian Exchange Rate Pass-Through, (USA: International Monetary Fund, 2008) accessed November 21, 2024

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

Using the theory of optimal local currency pricing, this paper constructs a structural equation to estimate the rate at which foreign producer prices pass through the local currency prices of imported goods in the U.S. This can be viewed as measuring exchange rate pass-through, in line with price stickiness in the New Keynesian Phillips curve literature. We estimate the structural equation using the generalized methods of moments for consistent estimates of exchange rate pass-through. We find that a model with a mix of local currency pricing and producer currency pricing fits the data best. The estimate of price stickiness in import prices is comparable to existing estimates of domestic price stickiness.

Subject: Exchange rate pass-through, Import prices, Inflation, Producer prices, Sticky prices

Keywords: WP

Publication Details

Pages:

25
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2008/213
Stock No:

WPIEA2008213
ISBN:

9781451870718
ISSN:

1018-5941

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