Low pass-through and high spillovers in NOEM: What does help and what does not
Grégory de Walque,
Ansgar Rannenberg and
Raf Wouters ()
No 386, Working Paper Research from National Bank of Belgium
This paper jointly analyses two major challenges of the canonical NOEM model: i) combining a relatively important exchange rate pass-through at the border with low pass-through at the consumer level, and ii) generating significant endogenous international business cycle synchronization. These issues have been separately analysed in the literature, with extension of the NOEM with a distribution sector for mitigating the exchange-rate pass-through, and foreign input trade for spillovers. We show that introducing input trade for price-maker firms rehabilitate the model regarding the pass-through disconnect, which is especially helpful to model very open economies, while adding a distribution sector lacks flexibility to do so. Moreover, these two extensions of the canonical model mitigate the expenditure switching effect, with implications in terms of international synchronization.
Keywords: Exchange rate pass-through; International trade in intermediate goods; International correlations; Small open economies. (search for similar items in EconPapers)
JEL-codes: E31 E32 F41 F44 (search for similar items in EconPapers)
Pages: 57 pages
New Economics Papers: this item is included in nep-mac and nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:nbb:reswpp:202007-386
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