Font Size: 

We examine exchange-rate pass-through (ERPT) to prices in a model of dispersed information where the nominal exchange rate imperfectly conveys information about the underlying fundamentals. If the information is complete, ERPT is also complete. Under dispersed information, our model displays three properties that are consistent with the stylized facts of pass-through. First, ERPT lies between 0 and 1 (incomplete ERPT). Second, ERPT is usually higher for imported goods prices than for consumer prices (exchange rate-consumer price puzzle). Third, ERPT is higher for emerging market countries and declines over time for both industrial and emerging market economies.

Dispersed information; Exchange rate pass-through; Local costs; Price setting