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Low pass-through and high spillovers in NOEM : What does help and what does not

Author

Listed:
  • Gregory de Walque

    (Research and Economics Department - National Bank of Belgium)

  • Thomas Lejeune

    (Research and Economics Department - National Bank of Belgium and and HEC-University of Liège.)

  • Ansgar Rannenberg

    (Research and Economics Department - National Bank of Belgium)

  • Raf Wouters

    (Research and Economics Department - National Bank of Belgium)

Abstract

This paper jointly analyses two major challenges of the canonical NOEM model: i) combining a relatively important exchange rate pass-through at the border with low pass-through at the consumer level, and ii) generating significant endogenous international business cycle synchronization. These issues have been separately analysed in the literature, with extension of the NOEM with a distribution sector for mitigating the exchange-rate pass-through, and foreign input trade for spillovers. We show that introducing input trade for price-maker firms rehabilitate the model regarding the pass-through disconnect, which is especially helpful to model very open economies, while adding a distribution sector lacks flexibility to do so. Moreover, these two extensions of the canonical model mitigate the expenditure switching effect, with implications in terms of international synchronization.

Suggested Citation

  • Gregory de Walque & Thomas Lejeune & Ansgar Rannenberg & Raf Wouters, 2020. "Low pass-through and high spillovers in NOEM : What does help and what does not," Working Paper Research 386, National Bank of Belgium.
    • Handle: RePEc:nbb:reswpp:202007-386
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    File URL: https://www.nbb.be/en/articles/low-pass-through-and-high-spillovers-noem-what-does-help-and-what-does-not
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    Cited by:

    1. Ortega, Eva & Osbat, Chiara, 2020. "Exchange rate pass-through in the euro area and EU countries," Occasional Paper Series 241, European Central Bank.

    More about this item

    Keywords

    Exchange rate pass-through; International trade in intermediate goods; International correlations; Small open economies.;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

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