IMF Working Papers

Some Implications for Monetary Policy of Uncertain Exchange Rate Pass-Through

Author/Editor:

Benjamin L Hunt ; Peter Isard

Publication Date:

March 4, 2003

Electronic Access:

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Summary:

The paper uses MULTIMOD to examine the implications of uncertain exchange rate pass-through for the conduct of monetary policy. From the policymaker's perspective, uncertainty about exchange rate pass-through implies uncertainty about policy multipliers and the impact of state variables on stabilization objectives. When faced with uncertainty about the strength of exchange rate pass-through, policymakers will make less costly errors by overestimating the strength of pass-through rather than underestimating it. The analysis suggests that pass-through uncertainty of the magnitude considered does not result in efficient policy response coefficients that are smaller than those under certainty.

Series:

Working Paper No. 2003/025

Subject:

Exchange rate adjustments Exchange rate pass-through Exchange rates Foreign exchange Import prices Inflation Output gap Prices Production