Citation

Discussion Paper Details

Please find the details for DP3608 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Endogenous Exchange Rate Pass-Through When Nominal Prices Are Set in Advance

Author(s): Michael B Devereux, Charles M Engel and Peter Ejler Storgaard

Publication Date: October 2002

Keyword(s): exchange rate pass-through, monetary policy and sticky prices

Programme Area(s): International Macroeconomics

Abstract: This Paper develops a model of endogenous exchange rate pass-through within an open economy macroeconomic framework, where both pass-through 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.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=3608

Bibliographic Reference

Devereux, M, Engel, C and Storgaard, P. 2002. 'Endogenous Exchange Rate Pass-Through When Nominal Prices Are Set in Advance'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=3608