Endogenous Exchange Rate Pass-through when Nominal Prices are Set in Advance

Arbeitspapier

This paper develops a model of endogenous exchange rate pass-through within an open economy macroeconomic framework, where both passthrough and the exchange rate are simultaneously determined, and interact with one another. Pass-through is endogenous because firms choose the currency in which they set their export prices. There is a unique equilibrium rate of pass-through under the condition that exchange rate volatility rises as the degree of pass-through falls. We show that the relationship between exchange rate volatility and economic structure may be substantially affected by the presence of endogenous pass-through. Our key results show that pass-through is related to the relative stability of monetary policy. Countries with relatively low volatility of money growth will have relatively low rates of exchange rate pass-through, while countries with relatively high volatility of money growth will have relatively high pass-through rates.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IEHAS Discussion Papers ; No. MT-DP - 2003/4

Classification and Topics

• Classification: Wirtschaft

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Devereux, Michael B. ; Engel, Charles ; Storgaard, Peter E.
• Event: Veröffentlichung
• (who): Hungarian Academy of Sciences, Institute of Economics
• (where): Budapest
• (when): 2003

Further information

• Handle: http://hdl.handle.net/10419/108049
• Last update: 10.03.2025, 11:46 AM CET