by James D. Hamilton
Department of Economics, University of California, San Diego
Understanding the consequences of international developments for domestic inflation is an extremely important question for central banks. But before we claim to have measured the extent of import price pass-through, it is necessary to be clear on exactly what such a number is intended to mean. One can attempt to come up with an answer on the basis of either economic theory or empirical evidence. There are important pitfalls associated with either approach and significant benefits from combining the two.
JEL Codes: E31, F42.
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