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Bank of Finland Research Discussion Papers, Bank of Finland

No 26/1996:
The Pass-Through of Exchange Rate Changes to Import Prices

Uwe Ketelsen and Mika Kortelainen

Abstract: In this paper we analyze the empirical relevance of exchange rate pass-through for Finland, Sweden and Denmark during the period 19801994. Further, we attempt to determine if there has been a structural change in the pass-through relationship in the1990s. We find that about half the changes in exchange rates and world prices are passed through to import prices within one year, and three-quarters of such changes are passed through to import prices in two years. Moreover, there are no major differences among countries. Parameter constancy tests indicate the possibility of a structural change where the pass-through has slowed in recent years. Possible explanations of this are that the exchange rate regime has changed and competition has increased.

Keywords: exchange rate pass-through; import prices; structural change; (follow links to similar papers)

33 pages, October 29, 1996

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