Recent research suggests that there has been a decline in the extent to which firms "pass through" changes in exchange rates to prices. Beyond providing further evidence in support of this claim, this paper proposes an explanation for the phenomenon. It then presents empirical evidence of a structural break during the 1990s in the relationship between the real exchange rate and CPI inflation for a set of 14 OECD countries. It is suggested that the recent reduction in the real exchange rate pass-through can be attributed in part to the low-inflation environment of the 1990s.

To explore the link between household consumption and wealth, we use a new source of harmonized microdata (Luxembourg Wealth Study). We investigate whether there are differences in wealth effects from different types of wealth and across age groups. We consider three countries: Canada, Italy and Finland. We find that the overall wealth effect from housing is stronger than the effect from financial wealth for the three countries in the sample. Additionally, in accordance with the life-cycle theory of consumption, we find the housing wealth effect to be significantly lower for younger households. We also find between-country differences in the wealth effect.

This paper provides a theoretical extension and an empirical test of a leading new approach to Phillips curve derivation--Mankiw and Reis's sticky information model. Firstly, I relax the original model's assumption that information about key macroeconomic variables is received at the same rate. Secondly, I provide a formal justification for a firm's decision to forego receiving information about a particular macroeconomic variable every period. Finally, using a sample of G7 countries, I provide empirical evidence in support of the theoretical assumption of different rates of information arrival for different macroeconomic variables.

Mankiw and Reis's (2002) sticky-information Phillips curve seems to be on its way to replace the previously popular New Keynesian one. Indeed, both models have appealing theoretical foundations, yet the sticky-information model yields more plausible predictions about the effects of monetary policy. However, the two models have not been compared in an open economy setting, which is the purpose of this paper. As a first step, I extend Mankiw and Reis's and the New Keynesian models to an open economy setting. I then compare responses of inflation to a real exchange rate shock in the two models. I show that, under plausible parameter values, both models perform equally well. Thus, although Mankiw and Reis's model does better then the New Keynesian when it comes to the effects of monetary shocks, it is hard to choose between the two when effects of exchange rate shocks are considered.