Inflation rates dictate how much exchange rates affect import prices.
The study looked at how different levels of inflation in countries affect how much changes in exchange rates impact import prices. Instead of using a fixed threshold like previous research, the study used a more precise method to find the best points to split countries into different inflation groups. By analyzing data from 63 countries between 1992 and 2012, the study found that countries with higher inflation rates tend to have a stronger impact of exchange rate changes on import prices.