Economic Development, Exchange Rates, and the Structure of Trade
The paper builds a two-country open economy model of incomplete exchange rate pass-through. The paper contributes to the existing literature in two ways. First, incomplete pass-through is the result of price discrimination, and not any assumption about price rigidities. The flexible-price model is capable of delivering empirically plausible magnitudes of pass-through, as long as the exchange rate shock is temporary and not very persistent. Second, the model is also used to shed light on the empirically observed differences in exchange rate pass-through between developing and developed countries. In particular, the discrepancy is explained by the different composition of consumption and trade patterns of rich and poor countries - an assumption to which some empirical support is also presented.
|Date of creation:||2005|
|Date of revision:|
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- Philip R. Lane & Michael B. Devereux,Juanyi Xu, 2005.
"Exchange Rates and Monetary Policy in Emerging Market Economies,"
The Institute for International Integration Studies Discussion Paper Series
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- Hafedh Bouakez & Nooman Rebei, 2005. "Has Exchange Rate Pass-Through Really Declined in Canada?," Staff Working Papers 05-29, Bank of Canada.
- Dalia S Hakura & Ehsan U. Choudhri, 2001.
"Exchange Rate Pass-Through to Domestic Prices; Does the Inflationary Environment Matter?,"
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- Choudhri, Ehsan U. & Hakura, Dalia S., 2006. "Exchange rate pass-through to domestic prices: Does the inflationary environment matter?," Journal of International Money and Finance, Elsevier, vol. 25(4), pages 614-639, June.
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