Empirical evidence documents a low pass-through of exchange rate changes to consumer prices in the short-run under a flexible exchange rate regime and the existence of relative price differentials across countries under a fixed exchange rate regime. Whether a two-country model is consistent with the relative price observation in addition to the pass-through observation has important implications for the optimal degree of nominal exchange rate variability in response to country-specific shocks.
Our Research Focus: Inflation and Monetary Policy
Amanda L. Kramer
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