Working paper no. 85: Exchange rate pass-through, monetary policy, and real exchange rates: Iceland and the 2008 crisis
The Central Bank of Iceland has published a research paper where two aspects of exchange rate pass-through are analysed using Icelandic data.
First, whether the pass-through coefficient varies with the degree of “international tradability” of goods. Second, if the pass-through coefficient depends on the monetary policy framework.
Twelve disaggregated price indexes are used for Icelandic data for 2003-2019, a period that includes Iceland’s banking and currency crisis of 2008.
The results show that the pass-through declined around the time Iceland reformed its “flexible inflation targeting,” and that the coefficients are significantly higher for tradable than for nontradable goods.
The working paper by Sebastian Edwards and Luis Cabezas can be accessed here: Exchange rate pass-through, monetary policy, and real exchange rates: Iceland and the 2008 crisis.