The impact of exchange rate shocks on inflation | ||
| مجلة السياسة والاقتصاد | ||
| Volume 29, Issue 28, October 2025, Pages 656-681 PDF (782.77 K) | ||
| Document Type: مقالات سیاسیة واقتصادیة | ||
| DOI: 10.21608/jocu.2025.396701.1455 | ||
| Authors | ||
| ريهام عبدالغني متولي مطاوع* 1; Eiman Aiyash2; احمد صبري ابوزيد3 | ||
| 1کلية السياسة والاقتصاد | ||
| 2North Carolina State University, | ||
| 3کلية سياسة والاقتصاد | ||
| Abstract | ||
| This paper investigates the degree of exchange rate pass-through (ERPT) to import prices, producer prices, and consumer prices in Canada and the United States using a Structural Vector Auto Regression (SVAR) model. While the overall scope of the study reflects economic developments through 2024, the empirical model is restricted to the period from 1980 to 2017. This cutoff is methodologically justified by the onset of significant global disruptions after 2017, including trade tensions, the COVID-19 pandemic, and the Russia–Ukraine war, which introduced structural breaks and heightened volatility in macroeconomic relationships. The SVAR results indicate a positive long-run correlation between exchange rates and aggregate price levels. The impulse response function reveals a persistent and incomplete pass-through for exchange rate shocks—estimated at 0.20 for Canada and 0.27 for the United States. These results suggest that greater ERPT tends to occur in economies with more volatile monetary policy environments and higher inflation rates. Consistent with the impulse response analysis, variance decomposition reveals that exchange rate fluctuations explain a larger share of consumer price variation in the United States, whereas in Canada, import prices are more directly influenced by exchange rate movements. import prices are more directly influenced by exchange rate movements. | ||
| Keywords | ||
| Exchange rate pass-through; Import price index; Producer price index; Consumer price index | ||
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