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As the world’s economies become more interconnected, a thorough understanding of how foreign policies affect domestic activity becomes crucial. Whether and how macroeconomic policy actions can be transmitted across countries and the extent to which flexible exchange rate may insulate an economy from foreign repercussion are important issues for today’s monetary policymakers. In a context of high and more volatile prices, understanding to what extent and speed price changes on international markets are transmitted to consumers is a key variable in assessing vulnerability of society from foreign price shocks.
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