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

Christopher Gust, Sylvain Leduc and Nathan Sheets

Journal of International Economics, 2009, vol. 79, issue 2, 173-185

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.

Keywords: Exchange-rate; pass-through; Trade; prices; Trade; balance (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (29)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0022-1996(09)00101-9
Full text for ScienceDirect subscribers only

Related works:
Working Paper: The adjustment of global external balances: does partial exchange rate pass-through to trade prices matter? (2008)
Working Paper: The Adjustment of Global External Imbalances: Does Partial Exchange Rate Pass-Through to Trade Prices Matter? (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:79:y:2009:i:2:p:173-185

Access Statistics for this article

Journal of International Economics is currently edited by Gourinchas, Pierre-Olivier and Rodríguez-Clare, Andrés

More articles in Journal of International Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().