September 2021 issue contents
Monetary Policy Credibility and Exchange Rate Pass-Through

Yan Carrière-Swallow, Bertrand Gruss, Nicolas E. Magud and Fabián Valencia
International Monetary Fund


A long-standing conjecture in macroeconomics is that declines in exchange rate pass-through over the past three decades are in part due to improved monetary policy performance. In a large sample of emerging and advanced economies, we find evidence that a relatively more credible monetary policy regime-measured by better-anchored inflation expectations-is associated with lower exchange rate pass-through to consumer prices. The results are robust to controlling for the level and variability of nominal variables and for the import content of the consumption basket.

JEL Code: E31, E52, F41.

Full article (PDF, 34 pages, 2458 kb)