Transmission of Nominal Exchange Rate Changes to Export Prices and Trade Flows and Implications for Exchange Rate Policy

72 Pages Posted: 8 Jun 2016

See all articles by Mathias Hoffmann

Mathias Hoffmann

Deutsche Bundesbank

Oliver Holtemöller

Halle Institute for Economic Research; Martin Luther University Halle-Wittenberg

Multiple version iconThere are 2 versions of this paper

Date Written: 2009

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.

Keywords: 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 Classification: F41, F31, F14

Suggested Citation

Hoffmann, Mathias and Holtemöller, Oliver, Transmission of Nominal Exchange Rate Changes to Export Prices and Trade Flows and Implications for Exchange Rate Policy (2009). Bundesbank Series 1 Discussion Paper No. 2009,21. Available at SSRN: https://ssrn.com/abstract=2785350

Mathias Hoffmann (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Oliver Holtemöller

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany

Martin Luther University Halle-Wittenberg ( email )

Halle-Wittenberg, Sachsen-Anhalt
Germany

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