Andrew Powell, 25 November 2017

The recent interest rate rise in the UK occurred despite negative economic news. This is not what conventional inflation-targeting policy would imply. This column argues that recent Latin American experience suggests the theory underlying inflation targeting may need to be reconsidered. Specifically, for small open economies, the role of the exchange rate and inflation expectations should be considered when deciding how to react. 

Dario Fauceglia, Andrea Lassmann, Anirudh Shingal, Martin Wermelinger, 18 February 2015

The sharp appreciation of the Swiss franc has once more raised fears about negative export growth and resulting losses for Swiss exporters. However, this column suggests that the Swiss economy’s high level of integration into global value chains potentially mitigates these negative effects by rendering imported intermediate inputs cheaper, thus reducing pressures on profit margins through the imported inputs channel.

Janine Aron, John Muellbauer, 16 September 2014

Using aggregate data can bias estimates of exchange rate pass-through by ignoring heterogeneity in price adjustment across sectors. This column uses micro-level price data to estimate pass-through for South Africa, using actual CPI weights to reflect changes in consumption bundles. The result is a micro-based estimate of pass-through with aggregation consistent enough to interest monetary policymakers.

Yuriy Gorodnichenko, Oleksandr Talavera, 15 September 2014

Online markets have unusual characteristics that allow testing whether the law of one price holds. This column uses a unique dataset to demonstrate that the frictions in the price adjustments in online markets are indeed lower. The authors find that in online markets the price change is smaller, the duration of price spell – shorter, the pass-through is larger, and speed of price adjustment – faster. In the future, we can expect smaller price differentials, bringing the law of one price closer to reality.

Nicolas Berman, Thierry Mayer, Philippe Martin, 22 October 2009

The prices of tradable goods are remarkably insensitive to exchange rate movements. This column provides a firm-level explanation. In response to a depreciation, high-performance firms raise their mark-ups rather than their export volumes, and their choices dominate the aggregate export variables.

Jacques Pelkmans, 16 December 2007

European business is concerned about EU leadership in climate strategies. The shortage of followers elsewhere in the world adds to nervousness about cost competitiveness and pass-through, which, in turn, may eventually undermine the credibility of EU strategies internally. It will be important to read the writing on the wall and respond if EU leadership in Bali is to continue.