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The International Transmission of Monetary Policy in a Dollar Pricing Model

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  • Juha Tervala

Abstract

This paper analyses the international transmission of monetary policy in a case where all export prices are set in US dollars. 'Dollar pricing' implies that the international effects of US monetary shocks are different to those of European shocks because of asymmetric exchange rate pass-through to import prices. A dollar pricing model can explain the observed asymmetry in the transmission of monetary policy: US monetary policy affects US output more than European monetary policy affects European output. I also show that the dollar pricing model reintroduces the current account as an important channel through which monetary policy affects welfare in the short run. The paper concludes that under dollar pricing monetary expansion is a beggar-thy-neighbour policy. Keywords: open economy macroeconomics, monetary policy, international policy transmission JEL classification numbers: F41, F42, F30
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  • Juha Tervala, 2010. "The International Transmission of Monetary Policy in a Dollar Pricing Model," Open Economies Review, Springer, vol. 21(5), pages 629-654, November.
  • Handle: RePEc:kap:openec:v:21:y:2010:i:5:p:629-654
    DOI: 10.1007/s11079-008-9105-5
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    Cited by:

    1. Tervala, Juha, 2013. "Learning by devaluating: A supply-side effect of competitive devaluation," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 275-290.
    2. Jan Hájek & Roman Horváth, 2016. "The Spillover Effect of Euro Area on Central and Southeastern European Economies: A Global VAR Approach," Open Economies Review, Springer, vol. 27(2), pages 359-385, April.
    3. Engler, Philipp, 2011. "Monetary policy and unemployment in open economies," Discussion Papers 2011/24, Free University Berlin, School of Business & Economics.
    4. Tervala, Juha, 2012. "International welfare effects of monetary policy," Journal of International Money and Finance, Elsevier, vol. 31(2), pages 356-376.
    5. Guohua He & Xinxin Chang, 2013. "The Dollar Standard and Stability of China’s Macroeconomy," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 186-204, December.
    6. Engler, Philipp & Tervala, Juha, 2011. "Beggar-thyself or beggar-thy-neighbour? The welfare effects of monetary policy," Economic Modelling, Elsevier, vol. 28(4), pages 2034-2040, July.
    7. Tervala, Juha, 2009. "Export pricing and the cross-country correlation of stock prices," Research Discussion Papers 28/2009, Bank of Finland.
    8. Tervala, Juha, 2011. "Export pricing and the cross-country correlation of stock prices," Review of Financial Economics, Elsevier, vol. 20(2), pages 74-83, May.

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    More about this item

    Keywords

    Open economy macroeconomics; Monetary policy; International policy transmission; F41; F42; F30;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • F30 - International Economics - - International Finance - - - General

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