An input-output model of exchange-rate pass-through

Aydoğuş O. , Değer Ç. , Caliskan E. , Gunal G.

ECONOMIC SYSTEMS RESEARCH, vol.30, pp.323-336, 2018 (Journal Indexed in SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 30
  • Publication Date: 2018
  • Doi Number: 10.1080/09535314.2017.1374243
  • Page Numbers: pp.323-336


The impact of the exchange rate on price formation is often debated through a mechanism called the exchange-rate pass-through. Studies of the pass-through generally rely on econometric analysis implemented on time series data. This study examines pass-through to the domestic price level through an input-output model. The proposed model is implemented on a sample of countries, and a number of different variables connected to the pass-through are examined. A comparison across countries and sectors highlights the importance of the construction sector in price formation. National income is negatively related to the pass-through. A high dependence on intermediate imports implies higher pass-through. Price level volatility and pass-through are positively related; whereas a country's monetary policy stance has no apparent effect. The effect of exchange-rate volatility is unclear; it is negative for the real effective exchange rate, the connection is very weak in the case of the nominal exchange rate.