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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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File URL: http://hdl.handle.net/10.1007/s11079-008-9105-5
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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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Related research

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

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  1. De Grauwe, Paul & Costa, Torti, C, 2005. "Is monetary policy in the Eurozone less effective than in the US?," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/119619, Katholieke Universiteit Leuven.
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  25. repec:cdl:ciders:1200 is not listed on IDEAS
  26. Ignazio Angeloni & Anil K. Kashyap & Benoît Mojon & Daniele Terlizzese, 2003. "The output composition puzzle - a difference in the monetary transmission mechanism in the euro area and the US," Working Paper Series 268, European Central Bank.
  27. Paul De Grauwe & Cláudia Costa Storti, 2005. "Is Monetary Policy in the Eurozone less Effective than in the US?," CESifo Working Paper Series 1606, CESifo Group Munich.
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Cited by:
  1. Philipp Engler, 2011. "Monetary Policy and Unemployment in Open Economies," NCER Working Paper Series 77, National Centre for Econometric Research.

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