Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/112224 
Year of Publication: 
2015
Series/Report no.: 
Bundesbank Discussion Paper No. 17/2015
Publisher: 
Deutsche Bundesbank, Frankfurt a. M.
Abstract: 
This paper provides an explanation for the observed decline of the exchange rate pass-through into import prices by modeling the effects of financial market integration on the optimal choice of the pricing currency in the context of rigid nominal goods prices. Contrary to previous literature, we take the interdependence of this choice with the optimal portfolio choice of internationally traded financial assets explicitly into account. In particular, price setters move towards more localcurrency pricing and portfolios include more foreign debt assets following increased financial integration. Both predictions are in line with novel empirical evidence.
Subjects: 
exchange rate pass-through
financial integration
portfolio home bias
international price setting
JEL: 
F41
F36
F31
ISBN: 
978-3-95729-160-8
Document Type: 
Working Paper

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