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A Dynamic Model of Endogenous Exchange Rate Pass-Through

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  • Tokhir Mirzoev

    (Ohio State University)

Abstract

This paper examines a two-country new open economy macroeconomics model with price stickiness a la Taylor, where exporters' choice of invoicing currency is endogenous. Besides generating incomplete pass-through, the model yields four main results. First, firms' invoicing strategy is generally time-varying. Second, instant pass-through into import prices is greater than into export prices when depreciations are caused by domestic monetary expansions. Thirdly, average pass-through is asymmetric in times of persistent depreciations and depreciations. It is higher under depreciations when the destination market is more competitive. Finally, cross-country differences in money supply variability produce an origin-based asymmetry: different average pass- through rates into import and export prices.

Suggested Citation

  • Tokhir Mirzoev, 2004. "A Dynamic Model of Endogenous Exchange Rate Pass-Through," International Finance 0409002, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpif:0409002
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    References listed on IDEAS

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    Cited by:

    1. Tovonony Razafindrabe, 2017. "Nonlinearity and asymmetry in the exchange rate pass-through: What role for nominal price stickiness?," Review of International Economics, Wiley Blackwell, vol. 25(4), pages 711-732, September.
    2. Olivier de Bandt & Tovonony Razafindrabe, 2014. "Exchange rate pass-through to import prices in the Euro-area: A multi-currency investigation," International Economics, CEPII research center, issue 138, pages 63-77.
    3. Dobrynskaya, V.V., 2008. "Asymmetric price rigidity and the optimal interest rate defense of the exchange rate: Some evidence for the US," Journal of Policy Modeling, Elsevier, vol. 30(5), pages 713-724.

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    More about this item

    Keywords

    exchange rate pass-through; open economy macroeconomics;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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