01952cas a2200253 a 4500 AALejournalIMF011973 230101c9999 xx r poo 0 0eng d 5.00 USD 9781475505245 1018-5941 BD-DhAAL BD-DhAAL Peiris, Shanaka. Global Commodity Prices, Monetary Transmission, and Exchange Rate Pass-Through in the Pacific Islands / Shanaka Peiris, Ding Ding. Washington, D.C. : International Monetary Fund, 2012. 1 online resource (16 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students Pacific Islands countries are vulnerable to commodity price shocks, and this poses challenges to monetary policy. The high degree of exchange rate pass-through to headline inflation and the weak monetary transmission mechanism in PICs suggest a greater efficacy of exchange rate changes in affecting inflation rather than monetary policy. To assess the tradeoff between the use of the exchange rate and monetary policy in macroeconomic stabilization, we employ a model-based approach to examine the optimal policy in response to the historical distribution of exogenous shocks in a Pacific Island (Tonga). The empirical evidence and model simulations tilt in the favor of exchange rate policy given the close relationship between exchange rate changes and headline inflation and the low interest rate sensitivity of aggregate demand. Mode of access: Internet Ding, Ding. IMF Working Papers; Working Paper ; No. 2012/176 Full text available on IMF http://elibrary.imf.org/view/journals/001/2012/176/001.2012.issue-176-en.xml IMF e-Library