Response of Domestic Prices to Exchange Rate Movements in Argentina

Abstract

Based on an extended IS-LM-AS model, this study finds that if the Argentine peso depreciates 1% versus the U.S. dollar, the consumer price in Argentina would increase by 0.2518%. In addition, more structural fiscal deficit as a percent of potential GDP, more M2 supply, a higher U.S. price level, and a higher expected price level would raise Argentina’s consumer price level. Therefore, partial exchange rate pass-through is confirmed for Argentina.