What drives exchange rate pass-throughs? Evidence from a non-parametric method

by Emanuel Kohlscheen, Aaron Mehrotra We provide new evidence on the drivers of the pass-through of exchange rate movements into consumer prices across four decades and close to a hundred countries, combining econometrics and random forests. Random forests are particularly useful for modelling highly non-linear relationships, as well as for identifying the relative importance of the different theoretical factors that can affect the degree of pass-through.