IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Exchange-rate pass through, openness, and the sacrifice ratio

  • Daniels, Joseph P.
  • VanHoose, David D.

Considerable recent work has reached mixed conclusions about whether and how globalization affects the inflation–output trade-off and suggests that the ultimate effect of openness on the output–inflation relationship is influenced by a variety of factors. In this paper, we consider the impact of exchange-rate pass through and examine how pass through conditions the effect of openness on the sacrifice ratio. We develop a simple theoretical model showing how the extent of both pass through and openness can interact to influence the output–inflation relationship. Next we empirically explore the nature of these two variables and their interaction. Results indicate that greater pass through increases the sacrifice ratio, that there is statistically significant interaction between pass through and openness, and—once the extent of pass through is taken into account alongside other factors that affect the sacrifice ratio, such as central bank independence—openness fails to exert an empirically robust effect on the sacrifice ratio.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/pii/S0261560613000351
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 36 (2013)
Issue (Month): C ()
Pages: 131-150

as
in new window

Handle: RePEc:eee:jimfin:v:36:y:2013:i:c:p:131-150
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30443

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.:

as in new window
  1. Adolfson, Malin, 2002. "Incomplete Exchange Rate Pass-Through and Simple Monetary Policy Rules," Working Paper Series 136, Sveriges Riksbank (Central Bank of Sweden).
  2. Joseph E. Gagnon & Jane Ihrig, 2004. "Monetary policy and exchange rate pass-through This article is a U.S. Government work and is in the public domain in the U.S.A," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 9(4), pages 315-338.
  3. Prasad Bhattacharya & Cem A. Karayalcin & Dimitrios D. Thomakos, 2006. "Exchange Rate Pass-Through and Relative Prices: An Industry-Level Empirical Investigation," Economics Series 2006_17, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
  4. Jay Bryson & Henrik Jensen & David Hoose, 1993. "Rules, discretion, and international monetary and fiscal policy coordination," Open Economies Review, Springer, vol. 4(2), pages 117-132, June.
  5. Razin, Assaf & Yuen, Chi-Wa, 2001. "The 'New Keynesian' Phillips Curve: Closed Economy versus Open Economy," CEPR Discussion Papers 3083, C.E.P.R. Discussion Papers.
  6. Daniels, Joseph P & Nourzad, Farrokh & Vanhoose, David D, 2005. "Openness, Central Bank Independence, and the Sacrifice Ratio," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(2), pages 371-79, April.
  7. Romer, David, 1993. "Openness and Inflation: Theory and Evidence," The Quarterly Journal of Economics, MIT Press, vol. 108(4), pages 869-903, November.
  8. Barbara Caporale & Tony Caporale, 2008. "Political Regimes and the Cost of Disinflation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(7), pages 1541-1554, October.
  9. Assaf Razin & Prakash Loungani & Chi-Wa Yuen, 2000. "Capital Mobility and the Output-Inflation Tradeoff," IMF Working Papers 00/87, International Monetary Fund.
  10. Badinger, Harald, 2009. "Globalization, the output-inflation tradeoff and inflation," European Economic Review, Elsevier, vol. 53(8), pages 888-907, November.
  11. Lian An & Jian Wang, 2012. "Exchange Rate Pass-Through: Evidence Based on Vector Autoregression with Sign Restrictions," Open Economies Review, Springer, vol. 23(2), pages 359-380, April.
  12. Devereux, Michael B. & Yetman, James, 2010. "Price adjustment and exchange rate pass-through," Journal of International Money and Finance, Elsevier, vol. 29(1), pages 181-200, February.
  13. Katharine S. Neiss, 2001. "The markup and inflation: evidence in OECD countries," Canadian Journal of Economics, Canadian Economics Association, vol. 34(2), pages 570-587, May.
  14. Cavelaars, Paul, 2009. "Does globalisation discipline monetary policymakers?," Journal of International Money and Finance, Elsevier, vol. 28(3), pages 392-405, April.
  15. Loungani, P. & Eazin, A. & Yuen, C.W., 1996. "Capital Mobility and the Output-Inflation Tradeoff," Papers 38-96, Tel Aviv.
  16. Joseph Daniels & David VanHoose, 2009. "Trade Openness, Capital Mobility, and the Sacrifice Ratio," Open Economies Review, Springer, vol. 20(4), pages 473-487, September.
  17. Daniels, Joseph P. & VanHoose, David D., 2009. "Openness, income-tax progressivity, and inflation," Journal of Macroeconomics, Elsevier, vol. 31(3), pages 485-491, September.
  18. Campa, José Manuel & Goldberg, Linda S., 2004. "Exchange Rate Pass-Through into Import Prices," CEPR Discussion Papers 4391, C.E.P.R. Discussion Papers.
  19. Daniels, Joseph P. & VanHoose, David D., 2006. "Openness, the sacrifice ratio, and inflation: Is there a puzzle?," Journal of International Money and Finance, Elsevier, vol. 25(8), pages 1336-1347, December.
  20. Laurence M. Ball, 2006. "Has Globalization Changed Inflation?," NBER Working Papers 12687, National Bureau of Economic Research, Inc.
  21. Temple, Jonathan, 2002. "Openness, Inflation, and the Phillips Curve: A Puzzle," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(2), pages 450-68, May.
  22. Flamini, Alessandro, 2007. "Inflation targeting and exchange rate pass-through," Journal of International Money and Finance, Elsevier, vol. 26(7), pages 1113-1150, November.
  23. Laurence Ball, 1993. "What Determines the Sacrifice Ratio?," NBER Working Papers 4306, National Bureau of Economic Research, Inc.
  24. Karras, Georgios, 1999. "Openness and the effects of monetary policy," Journal of International Money and Finance, Elsevier, vol. 18(1), pages 13-26, January.
  25. Taylor, John B., 2000. "Low inflation, pass-through, and the pricing power of firms," European Economic Review, Elsevier, vol. 44(7), pages 1389-1408, June.
  26. John V. Duca & David D. VanHoose, 2000. "Has Greater Competition Restrained U.S. Inflation?," Southern Economic Journal, Southern Economic Association, vol. 66(3), pages 729=741, January.
  27. Pickering Andrew & Valle Héctor A., 2012. "Openness, Imported Commodities and the Sacrifice Ratio," The B.E. Journal of Macroeconomics, De Gruyter, vol. 12(1), pages 1-26, March.
  28. Yelena Takhtamanova, 2008. "Understanding changes in exchange rate pass-through," Working Paper Series 2008-13, Federal Reserve Bank of San Francisco.
  29. Bowdler, Christopher, 2009. "Openness, exchange rate regimes and the Phillips curve," Journal of International Money and Finance, Elsevier, vol. 28(1), pages 148-160, February.
  30. Christopher Gust & Sylvain Leduc & Robert J. Vigfusson, 2006. "Trade integration, competition, and the decline in exchange-rate pass-through," International Finance Discussion Papers 864, Board of Governors of the Federal Reserve System (U.S.).
  31. Paul R. Bergin & Robert C. Feenstra, 2009. "Pass-Through of Exchange Rates and Competition between Floaters and Fixers," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(s1), pages 35-70, 02.
  32. Kenneth S. Rogoff, 2006. "Impact of globalization on monetary policy," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 265-305.
  33. Bowdler, Christopher & Nunziata, Luca, 2010. "Labor market structures and the sacrifice ratio," Journal of Macroeconomics, Elsevier, vol. 32(3), pages 816-826, September.
  34. Ball, Laurence, 1988. "Is Equilibrium Indexation Efficient?," The Quarterly Journal of Economics, MIT Press, vol. 103(2), pages 299-311, May.
  35. Matthew B. Canzoneri & Dale W. Henderson, 1991. "Monetary Policy in Interdependent Economies: A Game-Theoretic Approach," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262031787, June.
  36. Mototsugu Shintani & Akiko Terada-Hagiwara & Tomoyoshi Yabu, 2012. "Exchange rate pass-through and inflation: a nonlinear time series analysis," Vanderbilt University Department of Economics Working Papers 12-00008, Vanderbilt University Department of Economics.
  37. CARL GWIN & DAVID D. VanHOOSE, 2012. "Price And Wage Stickiness, Inflation And Profits," Manchester School, University of Manchester, vol. 80(3), pages 263-278, 06.
  38. repec:van:wpaper:1207 is not listed on IDEAS
  39. Joseph P. Daniels & Farrokh Nourzad & David D. VanHoose, 2005. "Openness, Centralized Wage Bargaining, and Inflation," Working Papers and Research 0505, Marquette University, Center for Global and Economic Studies and Department of Economics.
  40. Stephen Nickell & Luca Nunziata & Wolfgang Ochel, 2005. "Unemployment in the OECD Since the 1960s. What Do We Know?," Economic Journal, Royal Economic Society, vol. 115(500), pages 1-27, 01.
  41. Mario Marazzi & Nathan Sheets & Robert J. Vigfusson & Jon Faust & Joseph Gagnon & Jaime Marquez & Robert F. Martin & Trevor Reeve & John Rogers, 2005. "Exchange rate pass-through to U.S. import prices: some new evidence," International Finance Discussion Papers 833, Board of Governors of the Federal Reserve System (U.S.).
  42. Lane, Philip R., 1997. "Inflation in open economies," Journal of International Economics, Elsevier, vol. 42(3-4), pages 327-347, May.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:jimfin:v:36:y:2013:i:c:p:131-150. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.