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
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Citations: View citations in EconPapers (30)

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

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