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Buzaushina, Almira
Enders, Zeno
Hoffmann, Mathias
Year of Publication: 
Series/Report no.: 
Discussion Paper Series 569
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, the interdependence of this choice with the optimal portfolio choice of internationally traded financial assets is explicitly taken into account. In particular, price setters move towards more local-currency pricing while the debt portfolio includes more foreign assets following increased financial integration. Both predictions are in line with novel empirical evidence.
Exchange rate pass-through
financial integration
portfolio home bias
international price setting
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Document Type: 
Working Paper

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