Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/108049 
Year of Publication: 
2003
Series/Report no.: 
IEHAS Discussion Papers No. MT-DP - 2003/4
Publisher: 
Hungarian Academy of Sciences, Institute of Economics, Budapest
Abstract: 
This paper develops a model of endogenous exchange rate pass-through within an open economy macroeconomic framework, where both passthrough and the exchange rate are simultaneously determined, and interact with one another. Pass-through is endogenous because firms choose the currency in which they set their export prices. There is a unique equilibrium rate of pass-through under the condition that exchange rate volatility rises as the degree of pass-through falls. We show that the relationship between exchange rate volatility and economic structure may be substantially affected by the presence of endogenous pass-through. Our key results show that pass-through is related to the relative stability of monetary policy. Countries with relatively low volatility of money growth will have relatively low rates of exchange rate pass-through, while countries with relatively high volatility of money growth will have relatively high pass-through rates.
Document Type: 
Working Paper

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