Do exchange rates affect consumer prices? A comparative analysis for Australia, China and India

An important issue for exchange rate pass-through (ERPT) is the extent to which exchange rate changes affect the prices of imported goods and the consumer prices. The objectives of this study are to make a comparative study by exploring the literature relating pass-through for import prices and domestic prices in Australia, China and India. In particular, we test whether the exchange rate pass-through to import prices is complete, estimate the pass-through to consumer price index (CPI) to investigate whether there is any association between the pass-through and the average inflation rate across these countries. A structural VAR model is used to examine the exchange rate pass-through over the period 1990–2011. The impulse responses indicate that exchange rates have less effect in the rising domestic prices in China and India. This will have important policy implication for the monetary authorities.