Exchange rates and the inflation rate

摘要: The paper estimates the effects of exchange rate depreciation on price level using a vector autoregressive model rates, level, and money. study over January 1975 to February 1990 horizon uses variance decomposition impulse analysis trace links between above three variables. We find that rates prices are monetary phenomena, with money supply Granger causing both also an independent causal link from prices. Innovations accounting finds marginal contributions inflation forecast error approximately equal period 48 months. variables increase dramatically, however, when shocks system reordered. This finding suggests some explanatory power may be due contemporaneous policy feedback. results generally confirmed by analysis, which indicates depreciated dollar leads higher two year period.