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

Exchange-Rate Pass Through, Openness, and the Sacrifice Ratio

  • Daniels, Joseph P

    ()

    (Department of Economics Marquette University)

  • VanHoose, David D

    (Hankamer School of Business Baylor University)

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 how pass through conditions the effect of openness on the sacrifice ratio. We develop a simple theoretical model showing how both the extent of 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 significant interaction among 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 exerts an empirically ambiguous 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://epublications.marquette.edu/econ_workingpapers/5
Download Restriction: no

Paper provided by Marquette University, Center for Global and Economic Studies and Department of Economics in its series Working Papers and Research with number 2010-05.

as
in new window

Length:
Date of creation: Aug 2010
Date of revision:
Handle: RePEc:mrq:wpaper:2010-05
Contact details of provider: Postal: P.O. Box 1881, Milwaukee WI 53201-1881
Phone: (414) 288-7377
Web page: http://www.busamd.mu.edu/Economics/
Email:


More information through EDIRC

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. 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.
  2. 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.
  3. Gust, Christopher & Leduc, Sylvain & Vigfusson, Robert, 2010. "Trade integration, competition, and the decline in exchange-rate pass-through," Journal of Monetary Economics, Elsevier, vol. 57(3), pages 309-324, April.
  4. repec:van:wpaper:1207 is not listed on IDEAS
  5. 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.
  6. Joseph Daniels & David VanHoose, 2009. "Trade Openness, Capital Mobility, and the Sacrifice Ratio," Open Economies Review, Springer, vol. 20(4), pages 473-487, September.
  7. Loungani, Prakash & Razin, Assaf & Yuen, Chi-Wa, 2001. "Capital mobility and the output-inflation tradeoff," Journal of Development Economics, Elsevier, vol. 64(1), pages 255-274, February.
  8. Laurence Ball, 1993. "What determines the sacrifice ratio?," Working Papers 93-21, Federal Reserve Bank of Philadelphia.
  9. David Romer, 1991. "Openness and Inflation: Theory and Evidence," NBER Working Papers 3936, National Bureau of Economic Research, Inc.
  10. Razin, Assaf & Yuen, Chi-Wa, 2002. "The 'New Keynesian' Phillips curve: closed economy versus open economy," Economics Letters, Elsevier, vol. 75(1), pages 1-9, March.
  11. 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.
  12. 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.
  13. 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.
  14. 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.
  15. 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.
  16. 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.
  17. 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.
  18. Adolfson, Malin, 2001. "Incomplete Exchange Rate Pass-Through and Simple Monetary Policy Rules," SSE/EFI Working Paper Series in Economics and Finance 478, Stockholm School of Economics.
  19. Cavelaars, Paul, 2009. "Does globalisation discipline monetary policymakers?," Journal of International Money and Finance, Elsevier, vol. 28(3), pages 392-405, April.
  20. Laurence M. Ball, 2006. "Has Globalization Changed Inflation?," NBER Working Papers 12687, National Bureau of Economic Research, Inc.
  21. José Manuel Campa & Linda S. Goldberg, 2005. "Exchange Rate Pass-Through into Import Prices," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 679-690, November.
  22. Lane, Philip R., 1997. "Inflation in open economies," Journal of International Economics, Elsevier, vol. 42(3-4), pages 327-347, May.
  23. 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.).
  24. Paul R. Bergin & Robert C. Feenstra, 2007. "Pass-through of Exchange Rates and Competition Between Floaters and Fixers," NBER Working Papers 13620, National Bureau of Economic Research, Inc.
  25. 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.
  26. Yelena Takhtamanova, 2008. "Understanding changes in exchange rate pass-through," Working Paper Series 2008-13, Federal Reserve Bank of San Francisco.
  27. Joseph P. Daniels & David D. VanHoose, 2007. "Openness, Income-Tax Progressivity, and Inflation," Working Papers and Research 0704, Marquette University, Center for Global and Economic Studies and Department of Economics.
  28. Flamini, Alessandro, 2007. "Inflation targeting and exchange rate pass-through," Journal of International Money and Finance, Elsevier, vol. 26(7), pages 1113-1150, November.
  29. 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.
  30. 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.
  31. 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.
  32. 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.
  33. 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.
  34. 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.
  35. Karras, Georgios, 1999. "Openness and the effects of monetary policy," Journal of International Money and Finance, Elsevier, vol. 18(1), pages 13-26, January.
  36. 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.
  37. Ball, Laurence, 1988. "Is Equilibrium Indexation Efficient?," The Quarterly Journal of Economics, MIT Press, vol. 103(2), pages 299-311, May.
  38. Badinger, Harald, 2009. "Globalization, the output-inflation tradeoff and inflation," European Economic Review, Elsevier, vol. 53(8), pages 888-907, November.
  39. Bowdler, Christopher & Nunziata, Luca, 2010. "Labor market structures and the sacrifice ratio," Journal of Macroeconomics, Elsevier, vol. 32(3), pages 816-826, September.
  40. Bhattacharya, Prasad S. & Karayalcin, Cem A. & Thomakos, Dimitrios D., 2008. "Exchange rate pass-through and relative prices: An industry-level empirical investigation," Journal of International Money and Finance, Elsevier, vol. 27(7), pages 1135-1160, November.
  41. 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.
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:mrq:wpaper:2010-05. 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: (Joseph P. Daniels)

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.