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A Dynamic Model of Endogenous Exchange Rate Pass-Through

  • Tokhir Mirzoev

    (Ohio State University)

This paper examines a two-country new open economy macroeconomics model with price stickiness a la Taylor, where exporters' choice of invoicing currency is endogenous. Besides generating incomplete pass-through, the model yields four main results. First, firms' invoicing strategy is generally time-varying. Second, instant pass-through into import prices is greater than into export prices when depreciations are caused by domestic monetary expansions. Thirdly, average pass-through is asymmetric in times of persistent depreciations and depreciations. It is higher under depreciations when the destination market is more competitive. Finally, cross-country differences in money supply variability produce an origin-based asymmetry: different average pass- through rates into import and export prices.

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Paper provided by EconWPA in its series International Finance with number 0409002.

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Length: 32 pages
Date of creation: 07 Sep 2004
Date of revision:
Handle: RePEc:wpa:wuwpif:0409002
Note: Type of Document - pdf; pages: 32
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