Revisiting the exchangerate pass‐through : a general equilibrium perspective

• Autores: García Cicco, Javier; García Schmidt, Mariana
• Año de publicación: 2017
• Idioma: inglés
• Tipo de recurso: documento de trabajo
• Fuente: Documento de trabajo Nro. 58 del Departamento de Investigación Francisco Valsecchi. Facultad de Ciencias Económicas. Pontificia Universidad Católica Argentina. 2017
• Materia: POLITICA MONETARIA; FINANZAS; ECONOMIA INTERNACIONAL; COMERCIO INTERNACIONAL; MACROECONOMIA
• Institución: Pontificia Universidad Católica Argentina

Fil: García-Cicco, Javier. Pontificia Universidad Católica Argentina. Facultad de Ciencias Económicas; Argentina
Fil: García-Cicco, Javier. Banco Central de Chile; Chile
Fil: García-Schmidt, Mariana. Banco Central de Chile; Chile
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.