The adjustment of global external balances: does partial exchange rate pass-through to trade prices matter?

Christopher Gust, Sylvain Leduc and Nathan Sheets

No 2008-16, Working Paper Series from Federal Reserve Bank of San Francisco

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 DGE 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 world with more adjustment in a low pass-world occurring through a larger response of the exchange rate and terms of trade rather than real trade flows.

Keywords: Foreign exchange rates; Imports - Prices (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-cba, nep-dge, nep-int and nep-opm
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: The adjustment of global external balances: Does partial exchange-rate pass-through to trade prices matter? (2009)
Working Paper: The Adjustment of Global External Imbalances: Does Partial Exchange Rate Pass-Through to Trade Prices Matter? (2006)
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