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Imperfect exchange rate pass-through : the role of distribution services and variable demand elasticity

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  • Philippe Jeanfils

    (National Bank of Belgium, Research Department)

Abstract

This paper examines which mechanisms are likely to dampen the price pressures in the wake of exchange rate movements. In addition to nominal frictions frequently used in sticky-price models, it jointly introduces two features that have hitherto been considered separately in the existing literature, i.e. a variable demand elasticity à la Kimball (1995) and distribution services in the form of non-traded goods as in Corsetti and Dedola (2005). The paper explores the respective role of each feature and assesses the quantitative importance of these theoretical explanations for the exchange rate pass-through to a broad range of prices as well as for the real exchange rate and for the trade balance. Segmentation of national markets through distribution services and imperfect competition with variable mark-ups are important for accounting for the observed stability of import prices "at the border". Hence, these mechanisms help to explain the observed stability of import prices in local currency with realistic durations of price contracts.

Suggested Citation

  • Philippe Jeanfils, 2008. "Imperfect exchange rate pass-through : the role of distribution services and variable demand elasticity," Working Paper Research 135, National Bank of Belgium.
    • Handle: RePEc:nbb:reswpp:200808-19
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    Cited by:

    1. Stahn Kerstin, 2011. "Changes in Import Pricing Behaviour: Evidence for Germany," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 231(4), pages 522-545, August.
    2. Gregory De Walque & Thomas Lejeune & Yuliya Rychalovska & Rafael Wouters, 2017. "An estimated two-country EA-US model with limited exchange rate pass-through," Working Paper Research 317, National Bank of Belgium.
    3. Paul Gaggl, 2009. "The Role of Exchange Rate Movements for Prices in the Euro Area," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 83-103.
    4. Stahn, Kerstin, 2009. "Changes in import pricing behaviour: the case of Germany," Discussion Paper Series 1: Economic Studies 2009,14, Deutsche Bundesbank.
    5. G. de Walque & T. Lejeune & A. Stevens, 2019. "Exchange rates, prices, monetary policy and competitiveness," Economic Review, National Bank of Belgium, issue ii, pages 25-46, September.

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    More about this item

    Keywords

    exchange rate pass-through; general equilibrium;

    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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