EXCHANGE RATE CHANGES AND PRICE DYNAMICS IN THE TRIAD COUNTRIES
EXCHANGE RATE CHANGES AND PRICE DYNAMICS IN THE TRIAD COUNTRIES

Summary/Abstract: The phenomenon of incomplete exchange rate pass-through to prices has become one of the key research areas within so-called New Open Economy Macroeconomics. This theme is widely analyzed mainly in the American literature at macroeconomics as well as on microeconomics levels. The main aim of the article is to present the influence of exchange rate changes on the price dynamic the Euro-Zone, USA and Japan. The knowledge concerning the level of exchange rate pass-through to prices allows assessing how exchange rates affect on inflation and monetary policy in these countries. The article consists of two parts. The first part deals with theoretical analysis of the phenomenon of incomplete exchange rate pass-through to prices, including reasons and factors determining the range of this phenomenon. Moreover, in this part, there is made a brief overview of theoretical researches involving this subject. In the next part of article, there is analyzed the range of exchange rate pass-through to prices in the “Triad countries” by using the Vector Autoregression Model (VAR). There are estimated coefficients of exchange rate pass-through to import, producer and consumer prices on the base of impulse response function. Then, there is made decomposition of the price index variance in order to assess the degree of price determination by exchange rate changes. The summary of theoretical and empirical analysis is presented in the last section of the article.

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