"Exchange rate pass-through and monetary policy: application to the Eurozone.

Summary The thesis explores the transmission of exchange rate changes to import prices, a phenomenon known as exchange rate pass-through. The latter has been and will continue to be at the center of economic debates, particularly with respect to monetary policy, as it conditions the propagation of various shocks at the international level. To do this, we use individual data on French importing firms provided to us in confidence by the Institut National de la Statistique et des Études Économiques (INSEE), as well as new import price indices, not unit value indices, for several countries in the Euro zone. Through different approaches, both empirical and theoretical, we put forward some stylized facts about import prices and find that exchange rate pass-through is incomplete in the short run and complete in the long run. The incomplete pass-through in the short run is mainly related to the existence of nominal rigidity. Moreover, we show the important role played by the invoicing currency in the extent of pass-through. In terms of monetary policy, and using a multi-country DSGE model, we argue that nominal rigidity implies that the impact of a change in the exchange rate on the change in import prices is small and persistent. Combined with the existence of a domestic goods consumption bias, the impact on the variation of the consumer price is strongly reduced, thus allowing the monetary authorities to pursue an inflation stabilization policy with little action. All the more so since stabilizing the deviation from the law of one price can only be done at the expense of the output gap.