Low inflation leads to lower exchange rate pass-through, affecting domestic prices.
The study looked at how changes in exchange rates affect prices in different countries. They found that when inflation is low, exchange rate changes have less impact on prices. By analyzing data from 71 countries between 1979 and 2000, they discovered that countries with lower inflation rates had lower exchange rate pass-through to domestic prices. This means that in a low inflation environment, changes in exchange rates have less of an effect on the prices of goods and services within a country.