Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/27747 
Year of Publication: 
2009
Series/Report no.: 
Discussion Paper Series 1 No. 2009,21
Publisher: 
Deutsche Bundesbank, Frankfurt a. M.
Abstract: 
We discuss how the welfare ranking of fixed and flexible exchange rate regimes in a New Open Economy Macroeconomics model depends on the interplay between the degree of exchange rate pass-through and the elasticity of substitution between home and foreign goods. We identify combinations of these two parameters for which flexible and for which fixed exchange rates are superior with respect to welfare as measured by a representative household's utility level. We estimate the two parameters for six non-EMU European countries (Czech Republic, Hungary, Poland, Slovakia, Sweden, United Kingdom) using a heterogeneous dynamic panel approach.
Subjects: 
Elasticity of substitution between home and foreign goods
exchange rate pass-through
exchange rate regime choice
expenditure switching effect
heterogeneous dynamic panel
New Open Economy Macroeconomics
JEL: 
F41
F31
F14
ISBN: 
978-3-86558-546-2
Document Type: 
Working Paper

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