Norges Bank

Staff Memo

Pass-through from exchange rate movements to consumer prices

Pål Bergset Ulvedal and Nikka Husom Vonen
Staff Memo

In recent years, the Norwegian krone has depreciated considerably against other currencies, contributing to higher inflation in Norway. The rise in prices for imported consumer goods is currently at its highest level since 1988. In this article, we examine the mechanisms through which the exchange rate affects inflation, and we assess the pass-through from the krone exchange rate to consumer prices with the aid of various models. The pass-through currently appears to be somewhat higher than normal. In periods of substantial and persistent exchange rate movements, it may be reasonable to expect that the exchange rate pass-through to consumer prices is higher or more rapid than usual. Empirical studies do not provide straightforward evidence of whether the exchange rate pass-through to consumer prices is actually nonlinear.

Staff Memos present reports and documentation written by staff members and affiliates of Norges Bank, the central bank of Norway. Views and conclusions expressed in Staff Memos should not be taken to represent the views of Norges Bank.

ISSN 1504-2596 (online)

Published 4 April 2016 09:30
Published 4 April 2016 09:30