There has been a considerable recent debate on the causes of low pass-through from exchange rates to consumer prices. This paper develops a simple model of a small open economy in which exchange rate pass-through is determined by the frequency of price changes of importing firms. But this, in...

Trade within currency unions has been shown to be much larger than outside of currency unions, even after factoring in many relevant variables. The existing empirical evidence is based on reduced form models of trade, and therefore indicates that there exists a high correlation between currency...

It is generally believed that prices in Hong Kong are flexible. If this received wisdom is correct then the Currency Board system, which precludes a nominal exchange rate adjustment in response to macroeconomic shocks, may have little macroeconomic cost. However, this belief in price flexibility...

Mundell (1973) argues that a common currency area provides benefits for its members by offering insurance against region-specific shocks. We develop a simple model to analyse the nature of risksharing benefits of a single currency area for emerging market economies, based on Mundell's...

This paper investigates the effects of exchange rate regimes and alternative monetary policy rules for an emerging market economy that is subject to a volatile external environment in the form of shocks to world interest rates, world prices and the terms of trade. Our model allows for the...

A classic argument for flexible exchange rates is that the exchange rate plays a 'shock-absorber' role in an open economy vulnerable to country-specific shocks. This paper presents a sharp counter-example to this argument within a very conventional open economy model. Countries are subject to...

Both empirical evidence and theoretical discussion has long emphasized the impact of ¡¥news¡¦ on exchange rates. In most exchange rate models, the exchange rate acts as an asset price, and as such responds to news about future returns on assets. But the exchange rate also plays a role in...

Most theoretical analysis of flexible vs. fixed exchange rates take the degree of nominal rigidity to be independent of the exchange rate regime choice itself. But informal policy discussion often suggests that a credible exchange rate peg may increase internal price flexibility. This paper...

Empirical evidence from the Asian financial crisis of 1997-1998 suggests that exchange rate depreciation may have had a contractionary effect on the traded good sector of the worst-hit economies. Many writers have suggested that this was caused by exchange rate sensitive credit constraints...

Open economy macroeconomics typically abstracts from portfolio structure. But the recent experience of financial globalisation makes it important to understand the determinants and composition of gross country portfolios. This paper presents a simple approximation method for computing...