Document Type : Research Paper
Authors
1
Department of Economics, Faculty of Social Sciences, University of Zanjan, Zanjan, Iran.
2
Department of Economics, University of Portland, USA.
3
Department of Economics, University of Tabriz, Tabriz, Iran.
4
Department of Economics, University of Isfahan, Isfahan, Iran.
5
Department of Entrepreneurship Development, Faculty of Entrepreneurship, University of Tehran, Tehran, Iran.
10.22059/ier.2025.390817.1008191
Abstract
This study investigates the determinants of exchange rate pass-through (ERPT) to the Consumer Price Index (CPI) in OECD countries from 2010 to 2021, employing Mutual Information (MI) and Generalized Method of Moments (GMM) analyses to assess the roles of economic conditions and policy decisions. The MI approach identifies the relative importance of variables such as inflation targeting, floating exchange rate regimes, GDP per capita, inflation, economic growth, economic openness, trade openness, institutional quality, and moving average growth. Findings highlight that monetary policies and income levels are primary drivers of ERPT in key years, with trade openness and inflation gaining prominence during global shocks, while institutional quality and long-term growth trends play marginal roles. Complementarily, GMM results reveal that the exchange rate and Producer Price Index significantly influence CPI, though the pass-through is incomplete, moderated by competitive markets and production efficiency. GDP per capita, trade openness, and institutional quality consistently reduce ERPT, underscoring the stabilizing effect of robust economic structures and governance, whereas inflation slightly amplifies it. Economic growth mitigates ERPT, while inflation targeting and exchange rate regimes show limited impact. These results align with established literature, emphasizing that stable monetary conditions, strong institutions, and trade openness mitigate ERPT, particularly in developed economies. This study offers critical insights for policymakers in OECD countries, highlighting the importance of fostering institutional quality and trade openness to enhance price stability amid exchange rate fluctuations.
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