International Financial Market Integration, Asset Compositions and the Falling Exchange Rate Pass-Through

Arbeitspapier

This paper provides an explanation for the observed decline of the exchange rate pass-through into import prices by modeling the effects of financial market integration on the optimal choice of the pricing currency in the context of rigid nominal goods prices. Contrary to previous literature, the interdependence of this choice with the optimal portfolio choice of internationally traded financial assets is explicitly taken into account. In particular, price setters move towards more local-currency pricing while the debt portfolio includes more foreign assets following increased financial integration. Both predictions are in line with novel empirical evidence.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Discussion Paper Series ; No. 569

Classification and Topics

• Classification: Wirtschaft
• Subject: Exchange rate pass-through ; financial integration ; portfolio home bias ; international price setting

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Buzaushina, Almira ; Enders, Zeno ; Hoffmann, Mathias
• Event: Veröffentlichung
• (who): University of Heidelberg, Department of Economics
• (where): Heidelberg
• (when): 2014

Further information

• DOI: doi:10.11588/heidok.00017061
• Handle: http://hdl.handle.net/10419/127378
• URN: urn:nbn:de:bsz:16-heidok-170618
• Last update: 10.03.2025, 11:44 AM CET