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Transmission of nominal exchange rate changes to export prices and trade flows and implications for exchange rate policy

Listed author(s):
  • Hoffmann, Mathias
  • Holtemöller, Oliver

We discuss how the welfare ranking of fixed and flexible exchange rate regimes in a New Open Economy Macroeconomics model depends on the interplay between the degree of exchange rate pass-through and the elasticity of substitution between home and foreign goods. We identify combinations of these two parameters for which flexible and for which fixed exchange rates are superior with respect to welfare as measured by a representative household's utility level. We estimate the two parameters for six non-EMU European countries (Czech Republic, Hungary, Poland, Slovakia, Sweden, United Kingdom) using a heterogeneous dynamic panel approach.

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Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2009,21.

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Date of creation: 2009
Handle: RePEc:zbw:bubdp1:200921
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  17. Maurice Obstfeld, 2006. "Pricing-to-Market, the Interest-Rate Rule, and the Exchange Rate," NBER Working Papers 12699, National Bureau of Economic Research, Inc.
  18. Campa, Jose Manuel & Gonzalez Minguez, Jose M., 2006. "Differences in exchange rate pass-through in the euro area," European Economic Review, Elsevier, vol. 50(1), pages 121-145, January.
  19. Darvas, Zsolt, 2001. "Exchange rate pass-through and real exchange rate in EU candidate countries," Discussion Paper Series 1: Economic Studies 2001,10, Deutsche Bundesbank, Research Centre.
  20. Senay, Ozge & Sutherland, Alan, 2007. "Optimal monetary policy and the timing of asset trade in open economies," Economics Letters, Elsevier, vol. 95(2), pages 297-302, May.
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