Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
962406 | Journal of International Economics | 2009 | 13 Pages |
Abstract
This paper assesses whether partial exchange-rate pass-through to trade prices has important implications for the prospective adjustment of global external imbalances. To address this question, we develop and estimate an open-economy DSGE model in which pass-through is incomplete due to the presence of local currency pricing, distribution services, and a variable demand elasticity that leads to fluctuations in optimal markups. We find that the overall magnitude of trade adjustment is similar in a low and high pass-through environment with more adjustment in a low pass-through world occurring through movements in the terms of trade rather than real trade flows and through a larger response of the exchange rate.
Related Topics
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Economics and Econometrics
Authors
Christopher Gust, Sylvain Leduc, Nathan Sheets,