The adjustment of global external balances: Does partial exchange-rate passthrough to trade prices matter?

This paper assesses whether partial exchange-rate pass-through to trade prices has important implications for the prospective adjustment of global external imbalances. To address this question, we develop and estimate an open-economy DSGE model in which pass-through is incomplete due to the presence...

Full description

Saved in:
Bibliographic Details
Published inJournal of international economics Vol. 79; no. 2; p. 173
Main Authors Gust, Christopher, Leduc, Sylvain, Sheets, Nathan
Format Journal Article
LanguageEnglish
Published Amsterdam Elsevier Sequoia S.A 01.11.2009
Subjects
Adjustment
Balance of trade
Distribution services
Economic models
Elasticity
Elasticity of demand
Foreign exchange rates
Prices
Studies
Terms of trade
Trade flows
Online AccessGet full text
ISSN0022-1996
1873-0353

Cover

More Information
Summary:This paper assesses whether partial exchange-rate pass-through to trade prices has important implications for the prospective adjustment of global external imbalances. To address this question, we develop and estimate an open-economy DSGE model in which pass-through is incomplete due to the presence of local currency pricing, distribution services, and a variable demand elasticity that leads to fluctuations in optimal markups. We find that the overall magnitude of trade adjustment is similar in a low and high pass-through environment with more adjustment in a low pass-through world occurring through movements in the terms of trade rather than real trade flows and through a larger response of the exchange rate. [PUBLICATION ABSTRACT]
Bibliography:SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 14
ISSN:0022-1996
1873-0353