Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/232590
Authors: 
Corbo, Vesna
Di Casola, Paola
Year of Publication: 
2020
Series/Report no.: 
Sveriges Riksbank Working Paper Series No. 387
Abstract: 
We study the fluctuations of exchange rates and consumer prices in two small open economies, Sweden and Canada, using a structural Bayesian VAR. Four domestic and two global shocks are identified through zero and sign restrictions. For both economies, we find that the main driver of consumer price inflation is the global demand shock. A negative global demand shock is not only deflationary for the small open economy, but also depreciates its currency. Hence, the observed exchange rate pass-through following this shock is of opposite sign to what is usually expected. Finally, exogenous shocks to the exchange rate are less important drivers of exchange rate movements than in many other structural models.
Subjects: 
Exchange rate pass-through
consumer prices
import prices
monetary policy
global shocks
SVAR
JEL: 
E31
E52
F31
F41
Document Type: 
Working Paper

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