Do exchange rates affect consumer prices? A comparative analysis for Australia, China and India
Faculty of Business and Law
School of Business / Finance, Economics, Markets and Accounting Research Centre
An important issue for exchange rate pass-through (ERPT) is the extent to which exchange rate changes affect the prices of imported goods and the consumer prices. The objectives of this study are to make a comparative study by exploring the literature relating pass-through for import prices and domestic prices in Australia, China and India. In particular, we test whether the exchange rate pass-through to import prices is complete, estimate the pass-through to consumer price index (CPI) to investigate whether there is any association between the pass-through and the average inflation rate across these countries. A structural VAR model is used to examine the exchange rate pass-through over the period 1990-2011. The impulse responses indicate that exchange rates have less effect in the rising domestic prices in China and India. This will have important policy implication for the monetary authorities.