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UNEQUAL EXCHANGE RATE PASS-THROUGH ACROSS INCOME GROUPS

Published online by Cambridge University Press:  07 September 2020

Hakan Yilmazkuday
Hakan Yilmazkuday*
Affiliation:
Florida International University
*
Address correspondence to: Hakan Yilmazkuday, Department of Economics, Florida International, University, Miami, FL33199, USA. e-mail: hyilmazk@fiu.edu. Phone: +1-305-348-2316; Fax: +1-305-348-1524.
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Abstract

Exchange rate pass-through (ERPT) into prices and into income loss are shown to be enough to calculate ERPT into welfare loss using implications of a simple model. These ERPT measures are estimated at the good level using a unique micro-price data set from Turkey, and they are combined with income-group-specific expenditure shares at the good level to obtain aggregate-level ERPT measures for alternative income groups. An exchange rate shock resulting in a real depreciation of 1% is shown to decrease welfare by about 0.80% for the average-income consumer, while this estimate ranges between 0.73% and 0.83% for consumers in the lowest- and highest-income quintiles, respectively, suggesting evidence for redistributive effects of an exchange rate shock. Using micro prices has further resulted in showing that traded, nondurable, flexible-price, or income-elastic goods contribute more to ERPT into welfare loss for the average-income consumer, suggesting important policy implications for filtering out the noise in the measurement of aggregate-level prices.

Keywords

Exchange Rate Pass-ThroughWelfareStructural VARMicro Prices
Type
Articles
Information
Macroeconomic Dynamics , Volume 26 , Issue 3 , April 2022 , pp. 682 - 725
Copyright
© Cambridge University Press 2020

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Footnotes

The author would like to thank the editor William A. Barnett, two anonymous referees, and participants of the Conference in Honor of Ramazan Gencay at Istanbul Bilgi University for their helpful comments and suggestions. The usual disclaimer applies.

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