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The International Transmission of Monetary Policy in a Dollar Pricing Model

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  • Juha Tervala

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Abstract

This paper analyses the international transmission of monetary policy in a case where all export prices are set in US dollars. ‘Dollar pricing’ implies that the international effects of US monetary shocks are different to those of European shocks because of asymmetric exchange rate pass-through to import prices. A dollar pricing model can explain the observed asymmetry in the transmission of monetary policy: US monetary policy affects US output more than European monetary policy affects European output. I also show that the dollar pricing model reintroduces the current account as an important channel through which monetary policy affects welfare in the short run. The paper concludes that under dollar pricing monetary expansion is a beggar-thy-neighbour policy.

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Bibliographic Info

Article provided by Springer in its journal Open Economies Review.

Volume (Year): 21 (2010)
Issue (Month): 5 (November)
Pages: 629-654

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Handle: RePEc:kap:openec:v:21:y:2010:i:5:p:629-654

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Web page: http://www.springerlink.com/link.asp?id=100323

Related research

Keywords: Open economy macroeconomics; Monetary policy; International policy transmission; F41; F42; F30;

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References

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Citations

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Cited by:
  1. Juha Tervala, 2011. "Learning by Devaluating: A Supply-Side Effect of Competitive Devaluation," Discussion Papers 67, Aboa Centre for Economics.
  2. Engler, Philipp, 2011. "Monetary policy and unemployment in open economies," Discussion Papers 2011/24, Free University Berlin, School of Business & Economics.
  3. Tervala, Juha, 2011. "Export pricing and the cross-country correlation of stock prices," Review of Financial Economics, Elsevier, vol. 20(2), pages 74-83, May.
  4. Juha Tervala, 2011. "International Welfare Effects of Monetary Policy," Discussion Papers 66, Aboa Centre for Economics.
  5. Engler, Philipp & Tervala, Juha, 2011. "Beggar-thyself or beggar-thy-neighbour? The welfare effects of monetary policy," Economic Modelling, Elsevier, vol. 28(4), pages 2034-2040, July.
  6. Guohua He & Xinxin Chang, 2013. "The Dollar Standard and Stability of China’s Macroeconomy," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 186-204, December.

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