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

Benjamin Hunt and Peter Isard

No 2003/025, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; pass-through structure; output variability; pass-through effect; pass-through result; Monetary Policy; Exchange Rate; Uncertainty; pass-through uncertainty; pass-through specification; pass-through coefficient; Exchange rate pass-through; Inflation; Exchange rates; Output gap; Import prices; Global (search for similar items in EconPapers)
Pages: 36
Date: 2003-03-04
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Citations: View citations in EconPapers (7)

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