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State-dependent pricing, local-currency pricing, and exchange rate pass-through

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  • Landry, Anthony

Abstract

This paper presents a two-country DSGE model with state-dependent pricing as in Dotsey et al. (1999) in which firms discriminate across countries by setting prices in local currency. In this model, a domestic monetary expansion has greater spillover effects to foreign prices and foreign economic activity than an otherwise identical model with time-dependent pricing. In addition, the predictions of the state-dependent pricing model match the business-cycle moments better than the predictions of the time-dependent pricing model when driven by monetary policy shocks.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 34 (2010)
Issue (Month): 10 (October)
Pages: 1859-1871

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Handle: RePEc:eee:dyncon:v:34:y:2010:i:10:p:1859-1871

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Web page: http://www.elsevier.com/locate/jedc

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Keywords: International business cycle State-dependent pricing Local-currency pricing Exchange rate pass-through;

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References

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  1. Daniel Levy & Mark Bergen & Shantanu Dutta & Robert Venable, 2005. "The Magnitude of Menu Costs: Direct Evidence from Large U.S. Supermarket Chains," Macroeconomics 0505012, EconWPA.
  2. Kollmann, Robert, 2001. "The exchange rate in a dynamic-optimizing business cycle model with nominal rigidities: a quantitative investigation," Journal of International Economics, Elsevier, vol. 55(2), pages 243-262, December.
  3. Anthony E. Landry, 2006. "Expectations and exchange rate dynamics: a state-dependent pricing approach," Working Papers 0604, Federal Reserve Bank of Dallas.
  4. V.V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2002. "Can sticky price models generate volatile and persistent real exchange rates?," Staff Report 277, Federal Reserve Bank of Minneapolis.
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  6. Corsetti, Giancarlo & Dedola, Luca & Leduc, Sylvain, 2008. "High exchange-rate volatility and low pass-through," Journal of Monetary Economics, Elsevier, vol. 55(6), pages 1113-1128, September.
  7. Michael Dotsey & Robert G. King, 2005. "Implications of State Dependent-Pricing for Dynamic Macroeconomic Models," Boston University - Department of Economics - Macroeconomics Working Papers Series WP2005-002, Boston University - Department of Economics.
  8. Campa, José Manuel & Goldberg, Linda S, 2004. "Exchange Rate Pass-Through into Import Prices," CEPR Discussion Papers 4391, C.E.P.R. Discussion Papers.
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Cited by:
  1. Logan Lewis, 2011. "Exports versus Multinational Production under Nominal Uncertainty," 2011 Meeting Papers 223, Society for Economic Dynamics.
  2. Lewis, Logan T., 2014. "Menu Costs, Trade Flows, and Exchange Rate Volatility," International Finance Discussion Papers 1102, Board of Governors of the Federal Reserve System (U.S.).
  3. Mina Kim & Deokwoo Nam & Jian Wang & Jason Wu, 2013. "International Trade Price Stickiness and Exchange Rate and Pass-Through in Micro Data: A Case Study on US-China Trade," Working Papers 202013, Hong Kong Institute for Monetary Research.
  4. Mina Kim & Deokwoo Nam & Jian Wang & Jason Wu, 2013. "International trade price stickiness and exchange rate pass-through in micro data: a case study on U.S.–China trade," Globalization and Monetary Policy Institute Working Paper 135, Federal Reserve Bank of Dallas.

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