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Transmission of Nominal Exchange Rate Changes to Export Prices and Trade Flows and Implications for Exchange Rate Policy

  • Mathias Hoffmann
  • Oliver Holtemˆller

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 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, and the UK) using a heterogeneous dynamic panel approach. Copyright The editors of the "Scandinavian Journal of Economics" 2009 .

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Article provided by Wiley Blackwell in its journal Scandinavian Journal of Economics.

Volume (Year): 112 (2010)
Issue (Month): 1 (03)
Pages: 127-161

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Handle: RePEc:bla:scandj:v:112:y:2010:i:1:p:127-161
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