Exchange Rate Pass-Through and the Welfare Effects of the Euro

Michael Devereux, Charles Engel and Cédric Tille

No 7382, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper explores the implications of the European single currency within a simple sticky price intertemporal model. The main issue we focus on is how the euro may alter the responsiveness of consumer prices to exchange rate changes. Our central conjectures is that the acceptance of the euro will lead European prices to become more insulated from exchange-rate volatility, much the way U.S. consumer prices already are. We show that this has profound consequences for both the volatility and levels of macroeconomic aggregates in both the U.S. and Europe. We find that European welfare is enhanced, and, more surprisingly U.S. shares in Europe's good fortune. Alternative assumptions about how pricing behavior will change lead to different conclusions, but in all cases we can derive specific implications for expected levels and volatility of macroeconomic varialbes.

JEL-codes: F3 F4 (search for similar items in EconPapers)
Date: 1999-10
New Economics Papers: this item is included in nep-ifn and nep-mon
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Published as Devereux, Michael B., Charles Engel and Cedric Tille. "Exchange Rate Pass-Through And The Welfare Effects Of The Euro," International Economic Review, 2003, v44(1,Feb), 223-242.

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Related works:
Journal Article: Exchange Rate Pass-Through and the Welfare Effects of the Euro (2003)
Working Paper: Exchange-Rate Pass-Through and the Welfare Effects of the Euro (1999)
Working Paper: Exchange-Rate Pass-Through and the Welfare Effects of the Euro (1999)
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