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The international transmission of monetary policy in a dollar pricing model

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Author Info
Tervala, Juha () (University of Helsinki and HECER)

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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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Publisher Info
Paper provided by Bank of Finland in its series Research Discussion Papers with number 29/2007.

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Length: 36 pages
Date of creation: 16 Dec 2007
Date of revision:
Handle: RePEc:hhs:bofrdp:2007_029

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Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Web page: http://www.bof.fi/en/tutkimus
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Related research
Keywords: open economy macroeconomics; monetary policy; international policy transmission;

Other versions of this item:

Find related papers by JEL classification:
F30 - International Economics - - International Finance - - - General
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Mayes, David G & Nieto, Maria J & Wall , Larry, 2007. "Multiple safety net regulators and agency problems in the EU: is Prompt Corrective Action a partial solution?," Research Discussion Papers 7/2007, Bank of Finland. [Downloadable!]
  2. Jokivuolle, Esa & Kilponen , Juha & Kuusi, Tero, 2007. "GDP at risk in a DSGE model: an application to banking sector stress testing," Research Discussion Papers 26/2007, Bank of Finland. [Downloadable!]
  3. Caroline Schmidt, 2006. "International transmission effects of monetary policy shocks: can asymmetric price setting explain the stylized facts?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 11(3), pages 205-218. [Downloadable!]
  4. Bask, Mikael, 2007. "Optimal monetary policy in a hybrid New Keynesian model with a cost channel," Research Discussion Papers 24/2007, Bank of Finland. [Downloadable!]
  5. Kilponen , Juha & Santavirta, Torsten, 2007. "When do R&D subsidies boost innovation? Revisiting the inverted U-shape," Research Discussion Papers 10/2007, Bank of Finland. [Downloadable!]
  6. Goderis, Benedikt & Marsh, Ian & Vall Castello , Judit & Wagner, Wolf, 2007. "Bank behaviour with access to credit risk transfer markets," Research Discussion Papers 4/2007, Bank of Finland. [Downloadable!]
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  7. Bask, Mikael, 2007. "Measuring potential market risk," Research Discussion Papers 20/2007, Bank of Finland. [Downloadable!]
  8. Bask, Mikael, 2007. "Optimal monetary policy under heterogeneity in currency trade," Research Discussion Papers 21/2007, Bank of Finland. [Downloadable!]
  9. Ravenna , Federico & Seppälä, Juha, 2007. "Monetary policy, expected inflation and inflation risk premia," Research Discussion Papers 18/2007, Bank of Finland. [Downloadable!]
  10. Bask, Mikael & Selander, Carina, 2007. "Robust Taylor rules in an open economy with heterogeneous expectations and least squares learning," Research Discussion Papers 6/2007, Bank of Finland. [Downloadable!]
  11. Bask, Mikael, 2007. "Instrument rules in monetary policy under heterogeneity in currency trade," Research Discussion Papers 22/2007, Bank of Finland. [Downloadable!]
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  12. Bask, Mikael, 2007. "Long swings and chaos in the exchange rate in a DSGE model with a Taylor rule," Research Discussion Papers 19/2007, Bank of Finland. [Downloadable!]
  13. Kilponen, Juha & Leitemo, Kai, 2007. "Discretion and the transmission lags of monetary policy," Research Discussion Papers 8/2007, Bank of Finland. [Downloadable!]
  14. Bask, Mikael, 2007. "A case for interest rate smoothing," Research Discussion Papers 25/2007, Bank of Finland. [Downloadable!]
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