Import Prices and Inflation
by James D. Hamilton
Department of Economics, University of California, San Diego
Understanding the consequences of international developments
for domestic inflation is an extremely important question
for central banks. But before we claim to have measured
the extent of import price pass-through, it is necessary to be
clear on exactly what such a number is intended to mean. One
can attempt to come up with an answer on the basis of either
economic theory or empirical evidence. There are important
pitfalls associated with either approach and significant benefits
from combining the two.
JEL Codes: E31, F42.
(PDF, 10 pages 179 kb)