Exchange Rate Pass-Through and the Welfare Effects of the Euro

20 Pages Posted: 18 May 2003

See all articles by Michael B. Devereux

Michael B. Devereux

University of British Columbia (UBC) - Department of Economics; Centre for Economic Policy Research (CEPR)

Charles M. Engel

University of Wisconsin - Madison - Department of Economics; National Bureau of Economic Research (NBER); University of Washington - Department of Economics

Cédric Tille

Graduate Institute of International and Development Studies (HEI)

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Abstract

This article explores the implications of the European single currency within a simple sticky price intertemporal model. We focus on the question of how the euro may change the sensitivity of consumer prices in Europe to exchange-rate changes. Our central conjecture is that the acceptance of the euro will lead European prices to become more insulated from exchange-rate volatility. We find that this affects both the volatility and levels of macroeconomic aggregates in both the U.S. and Europe. We find that European welfare is enhanced, and the U.S. shares in Europe's good fortune.

Suggested Citation

Devereux, Michael B. and Engel, Charles M. and Tille, Cedric, Exchange Rate Pass-Through and the Welfare Effects of the Euro. International Economic Review, Vol. 44, No. 1, pp. 223-242, February 2003. Available at SSRN: https://ssrn.com/abstract=377089

Michael B. Devereux

University of British Columbia (UBC) - Department of Economics ( email )

997-1873 East Mall
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Centre for Economic Policy Research (CEPR)

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Charles M. Engel

University of Wisconsin - Madison - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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University of Washington - Department of Economics ( email )

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Cedric Tille (Contact Author)

Graduate Institute of International and Development Studies (HEI) ( email )

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Geneva, CH-1211
Switzerland

HOME PAGE: http://sites.google.com/site/cedrictilleheid/home

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