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On the Relationship between Pass-Through and Sticky Nominal Prices

  • Charles Engel

    (University of Wisconsin
    NBER)

The paper draws a link between the conditions for low pass-through when there are flexible prices, and local-currency pricing when there are sticky nominal prices. It shows that the condition under which pass-through is less than one-half when prices are flexible is the same as the condition under which exporting firms set prices in the currency of importing countries when nominal prices must be set in advance.

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Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 112004.

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Length: 19 pages
Date of creation: Jun 2004
Date of revision:
Handle: RePEc:hkm:wpaper:112004
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  1. Goldberg, Pinelopi Koujianou & Verboven, Frank, 1998. "The Evolution of Price Dispersion in the European Car Market," CEPR Discussion Papers 2029, C.E.P.R. Discussion Papers.
  2. Ariel T. Burstein & Joao C. Neves & Sergio Rebelo, 2000. "Distribution Costs and Real Exchange Rate Dynamics During Exchange-Rate-Based Stabilizations," RCER Working Papers 473, University of Rochester - Center for Economic Research (RCER).
  3. Ariel Burstein & Martin Eichenbaum & Sergio Rebelo, 2002. "Why Are Rates of Inflation So Low After Large Devaluations?," NBER Working Papers 8748, National Bureau of Economic Research, Inc.
  4. Betts, Caroline & Devereux, Michael B., 1996. "The exchange rate in a model of pricing-to-market," European Economic Review, Elsevier, vol. 40(3-5), pages 1007-1021, April.
  5. V.V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2002. "Can sticky price models generate volatile and persistent real exchange rates?," Staff Report 277, Federal Reserve Bank of Minneapolis.
  6. Giovannini, Alberto, 1988. "Exchange rates and traded goods prices," Journal of International Economics, Elsevier, vol. 24(1-2), pages 45-68, February.
  7. Obstfeld, Maurice & Rogoff, Kenneth S., 1995. "Exchange Rate Dynamics Redux," Scholarly Articles 12491026, Harvard University Department of Economics.
  8. Feenstra, Robert C., 1989. "Symmetric pass-through of tariffs and exchange rates under imperfect competition: An empirical test," Journal of International Economics, Elsevier, vol. 27(1-2), pages 25-45, August.
  9. Betts, Caroline & Devereux, Michael B., 2000. "Exchange rate dynamics in a model of pricing-to-market," Journal of International Economics, Elsevier, vol. 50(1), pages 215-244, February.
  10. Michael B. Devereux & Charles Engel & Peter E. Storgaard, 2002. "Endogenous Exchange Rate Pass-Through When Nominal Prices are Set in Advance," Working Papers 212002, Hong Kong Institute for Monetary Research.
  11. Robert C. Feenstra & Jon D. Kendall, 1994. "Passthrough of Exchange Rates and Purchasing Power Parity," NBER Working Papers 4842, National Bureau of Economic Research, Inc.
  12. Ariel Burstein & Martin Eichenbaum & Sergio Rebelo, 2003. "Why is Inflation so Low after Large Devaluations?," IEHAS Discussion Papers 0308, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  13. Giancarlo Corsetti & Paolo Pesenti, 2001. "International dimensions of optimal monetary policy," Staff Reports 124, Federal Reserve Bank of New York.
  14. Aw, Bee-Yan, 1993. "Price discrimination and markups in export markets," Journal of Development Economics, Elsevier, vol. 42(2), pages 315-336, December.
  15. Friberg, Richard, 1998. "In which currency should exporters set their prices?," Journal of International Economics, Elsevier, vol. 45(1), pages 59-76, June.
  16. Pinelopi K. Goldberg & Michael M. Knetter, 1996. "Goods Prices and Exchange Rates: What Have We Learned?," NBER Working Papers 5862, National Bureau of Economic Research, Inc.
  17. Goldberg, Pinelopi Koujianou & Knetter, Michael M., 1999. "Measuring the intensity of competition in export markets," Journal of International Economics, Elsevier, vol. 47(1), pages 27-60, February.
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