There are several theoretical arguments for why the adoption of a common currency (either a currency union or a currency board) may reduce the exchange rate pass-through (ERPT) to domestic consumer prices. This paper examines a broad panel of 101 countries over the period 1976-2006, using two-stage instrumental-variable estimation techniques in order to resolve the potential endogeneity problem. The main result is that ERPT indeed tends to decline in countries participating in a common currency arrangement. In particular, there has been a strong reduction in pass-through in the member countries of the European Monetary Union (EMU) since the launch of the euro. Currency boards do not appear to be different from currency unions - both reduce the pass-through from depreciation to inflation. Furthermore, the negative impact of common currencies on ERPT is at work in both high-income and low-income countries. Finally, most of the reduction in pass-through to consumer prices under common currency arrangements happens somewhere along the pricing chain between the border and the supermarket shelf. Copyright 2008 The Author. Journal compilation 2008 Blackwell Publishing Ltd.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Publisher Info
Article provided by Blackwell Publishing in its journal World Economy.
Volume (Year): 31 (2008) Issue (Month): 12 (December) Pages: 1599-1624 Download reference. The following formats are available: HTML
(with abstract),
plain text
(with abstract),
BibTeX,
RIS (EndNote, RefMan, ProCite),
ReDIF
Did you know? You can import bibliographic info in various formats into you bibliographic tool, or just into your word processor. See under "publisher info" on each abstract page.