Macroeconomic Volatility and Exchange Rate Pass-through under Internationalized Production
This paper shows that internationalized production, modelled as trade in intermediate goods, challenges the standard result according to which exchange rate volatility insulates small open economies from external shocks. Movements of relative prices affect the economy through an additional channel, denoted as the cost channel. We show that this channel also acts as an automatic stabilizer and that macroeconomic volatility is dramatically reduced when trade in intermediate goods is taken into account. Finally, trade in intermediate goods affects the exchange rate pass-through to consumption prices and may contribute explaining the puzzle described by McCallum & Nelson (2000).
|Date of creation:||2009|
|Date of revision:|
|Note:||View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00407665|
|Contact details of provider:|| Web page: http://hal.archives-ouvertes.fr/ |
When requesting a correction, please mention this item's handle: RePEc:hal:journl:halshs-00407665. 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: (CCSD)
If references are entirely missing, you can add them using this form.