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Transmission of nominal exchange rate changes to export prices and trade flows and implications for exchange rate policy

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Author Info
Hoffmann, Mathias
Holtemöller, Oliver
Abstract

We discuss how the welfare ranking of fixed and flexible exchange rate regimes in a New Open Economy Macroeconomics model depends on the interplay between the degree of exchange rate pass-through and the elasticity of substitution between home and foreign goods. We identify combinations of these two parameters for which flexible and for which fixed exchange rates are superior with respect to welfare as measured by a representative household's utility level. We estimate the two parameters for six non-EMU European countries (Czech Republic, Hungary, Poland, Slovakia, Sweden, United Kingdom) using a heterogeneous dynamic panel approach. --

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Publisher Info
Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2009,21.

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Date of creation: 2009
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Handle: RePEc:zbw:bubdp1:200921

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Related research
Keywords: Elasticity of substitution between home and foreign goods; exchange rate pass-through; exchange rate regime choice; expenditure switching effect; heterogeneous dynamic panel; New Open Economy Macroeconomics;

Find related papers by JEL classification:
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
F31 - International Economics - - International Finance - - - Foreign Exchange
F14 - International Economics - - Trade - - - Country and Industry Studies of Trade

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This page was last updated on 2009-11-30.

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