A new look at exchange rate pass-through in the G-7 countries.

This paper analyzes the exchange rate pass-through (ERPT) to domestic prices (consumer and producer prices), and to import prices for the G-7 countries. It is our aim to answer three key questions with strong economic policy implications: (i) is there a lower rate of ERPT in countries with an increased emphasis in monetary policy based on price stability?; (ii) is there a significant connection between ERPT and inflation volatility?; and (iii) do exchange rate regimes have a role to explain the ERPT? Our findings suggest that: (i) Taylor's hypothesis holds; (ii) there is a robust and positive significant connection between ERPT and inflation volatility; and (iii) ERPT depends on the exchange rate regimes. [ABSTRACT FROM AUTHOR]