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

Scandinavian Journal of Economics, Vol. 112, 2010

Posted: 20 Jul 2017

See all articles by Oliver Holtemöller

Oliver Holtemöller

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

Mathias Hoffmann

Deutsche Bundesbank

Multiple version iconThere are 2 versions of this paper

Date Written: 2010

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 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, and the UK) 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

Holtemöller, Oliver and Hoffmann, Mathias, Transmission of Nominal Exchange Rate Changes to Export Prices and Trade Flows and Implications for Exchange Rate Policy (2010). Scandinavian Journal of Economics, Vol. 112, 2010. Available at SSRN: https://ssrn.com/abstract=3004394

Oliver Holtemöller (Contact Author)

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

Mathias Hoffmann

Deutsche Bundesbank ( email )

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

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