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An input–output model of exchange-rate pass-through

Author

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  • Osman Aydoğuş
  • Çağaçan Değer
  • Elif Tunalı Çalışkan
  • Gülçin Gürel Günal

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.

Suggested Citation

  • Osman Aydoğuş & Çağaçan Değer & Elif Tunalı Çalışkan & Gülçin Gürel Günal, 2018. "An input–output model of exchange-rate pass-through," Economic Systems Research, Taylor & Francis Journals, vol. 30(3), pages 323-336, July.
    • Handle: RePEc:taf:ecsysr:v:30:y:2018:i:3:p:323-336
    DOI: 10.1080/09535314.2017.1374243
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    Cited by:

    1. Yuwan Duan & Yanping Zhao & Jakob Haan, 2020. "Exchange Rate Pass-through in China: A Cost-Push Input-Output Price Model," Open Economies Review, Springer, vol. 31(3), pages 513-528, July.
    2. Theodore Mariolis & Nikolaos Rodousakis & Apostolis Katsinos, 2019. "Wage versus currency devaluation, price pass-through and income distribution: a comparative input–output analysis of the Greek and Italian economies," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 8(1), pages 1-23, December.

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