Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/108071
Authors: 
Konya, Istvan
Year of Publication: 
2005
Series/Report no.: 
IEHAS Discussion Papers MT-DP - 2005/14
Abstract: 
The paper builds a two-country open economy model of incomplete exchange rate pass-through. The paper contributes to the existing literature in two ways. First, incomplete pass-through is the result of price discrimination, and not any assumption about price rigidities. The flexible-price model is capable of delivering empirically plausible magnitudes of pass-through, as long as the exchange rate shock is temporary and not very persistent. Second, the model is also used to shed light on the empirically observed differences in exchange rate pass-through between developing and developed countries. In particular, the discrepancy is explained by the different composition of consumption and trade patterns of rich and poor countries - an assumption to which some empirical support is also presented.
Subjects: 
Exchange rate pass-through
Economic development
International trade
JEL: 
F12
F31
F41
Document Type: 
Working Paper

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