In contrast, unpublished empirical work by the staff at the Federal Reserve Board suggests that, once we take the rising share of imports into account, the influence of import prices on core inflation in the United States has not changed much in the context of reduced-form forecasting models.
6 At the same time, the influence of exchange rate movements on import prices – the so-called pass-through effect – may have fallen substantially, at least according to some studies. 7 If so, then the influence of exchange rate fluctuations on domestic inflation may now be less than it once was, when one controls for changes in the volume of our foreign trade.