Diverse elements have driven inflation in the Cuban economy in the early 2020s, but the big-bang devaluation of the peso in 2021—the key measure that unlocks monetary reform—stands out as the main determinant. Analysis indicates that the inflation rate ranged between 174% and 700%, well above the government’s 2021 consumer price index estimate (77%) and closer to the deflator of household consumption derived from the national income accounts (442%). Even with this larger inflation, there is room for a real depreciation of the peso in the short term. The relative rise of tradable goods prices and incomplete pass-through from the exchange rate to inflation create new incentives and enhance financial transparency in the short term. However, the absence of sufficient structural reforms, the complex macroeconomic scenario, and the persistence of high fiscal deficit, inflation, and devaluation of the peso in the informal market after 2021 put most of the potential benefits of the monetary reform at risk. Monetary instability is a deep, continuing problem.

We introduce business-to-business (B2B) relationships into an otherwise standard model to revisit two aspects of price dynamics in a unified analysis. On one side, the pass-through of cost shocks to prices is empirically incomplete. On the other side, the literature contains conjectures that long-term relationships may reduce the allocative role of price changes. After a partial equilibrium analysis of these aspects, we consider the general equilibrium effects. The formation of B2B relationships implies that the trade of intermediate goods depends on search, bargaining, and the adjustment along the intensive margin as opposed to the extensive margin. We find that, when this adjustment is costly, retailers have a relatively high bargaining power, and mismatch shocks are possible, the model can account for the second moments of the US producer price index and other variables. In this case, although its allocative role is low, the intermediate goods price affects the allocation of goods through the search externalities and is sufficiently volatile. The analysis includes several sensitivity tests and comparisons.

In this paper, we analyze profit margins and markups of Fair Trade (FT) wines sold in the United States. We are particularly interested in whether and to what extent the FT cost impulse in production is passed along to the supply chain. We draw on a limited sample of about 470 South African wines sold in Connecticut and New Jersey in the fall of 2016; about 90 of them are certified FT. For these wines we have free on board export prices, wholesale prices, and retail prices, which allows us to compute wholesale and retail margins and analyze the FT treatment effect. We run OLS, 2SLS, and propensity score matching models and find evidence of asymmetrical pricing behavior. While wholesalers seem to fully pass-through the FT cost effect, retailers appear to amplify the cost effect. As a result, at the retail level, FT wines yield significantly higher margins than their non-FT counterparts. (JEL Classifications: L11, L31, L43, L81, Q17)

This paper examines the heterogeneity of exchange rate pass-through into industry-specific import, producer, and consumer prices. Results show that depending on the imported input contents, price responsiveness to the aggregate and relative exchange rate changes displays significant differences. We found that direct exchange rate impacts are more significant than indirect effects. The importance of the indirect effects is largely influenced from energy, basic metal, and chemical industries that provide intermediate inputs to others. The time horizon plays a role in the transition process: exchange rate pass-through tends to get stronger and spread to different price indices over time. The short-run impacts of aggregate exchange rate changes are not significant, while relative exchange rate changes partially transmit to producer and consumer prices in low-import content industries. In the long run direct impacts of both aggregate and relative exchange rates are significant on import prices in all industries and producer prices in high-import content industries. Another interesting finding is that the relative and aggregate exchange rate changes have opposing impacts on domestic prices: asymmetric information about industry-specific exchange rates can create pricing opportunities.

The effects of the U.S. dollar exchange rate versus the Mexican peso are evaluated for four traded nonfarm-produced inputs (fertilizer, chemicals, farm machinery, and feed) in the U.S. Unit root tests suggest that the exchange rate and the four input price ratios support the presence of unit roots with a trend model but the presence unit roots can be rejected in the first difference model. This result is consistent with a fixed price/flex price conceptual framework, with industrial prices more likely to be unresponsive to the exchange rate than farm commodity prices.

This paper analyzes exchange-rate dynamics following a money-based disinflation under different degrees of exchange-rate pass-through. Using a microfounded dynamic general equilibrium model with imperfect competition and nominal rigidities, it is shown that a monetary slowdown causes an appreciation of the exchange rate and a short-run fall in employment. Varying the degree of pass-through, however, significantly alters the magnitudes of these effects. As the degree of pass-through is reduced, the extent of the short-run appreciation of the exchange rate increases and the short-run impact of the disinflation on employment falls.