Monetary policy changes drive decline in exchange rate pass-through in Canada.
The article explores how changes in monetary policy can affect how much changes in exchange rates impact consumer prices in Canada. The researchers use a model to see how different policy approaches can influence this relationship. They find that more aggressive monetary policy can reduce the impact of exchange rate changes on consumer prices. This suggests that changes in how monetary policy is conducted may explain why exchange rate pass-through to consumer prices has decreased in Canada since the 1970s.