Using both regression- and VAR-based estimates, the paper finds that the exchange rate pass-through to import prices for a large number of countries is incomplete and larger than the pass-through to export prices. Previous studies have reported similar results, which give rise to the puzzle that...

This paper evaluates the consequences of the integration of international asset markets when goods markets are characterized by price rigidities. Using an open economy general equilibrium model with volatility in the money markets, we show that such an integration is not universally beneficial....

In the Eurozone price stickiness differs among countries. I explore its consequences on the optimal rate of inflation in a two-country model. On the one hand, with local currencies an inflation tax is partly imposed on the foreign country, so it creates incentives to inflate. On the other hand,...

This paper studies the optimal design of monetary policy in an optimizing two-country sticky price model. We suppose that the production sequence of final consumption goods stretches across both countries and is associated with vertical trade. Prices of final consumption goods are sticky in the...

While invoicing currency has been extensively studied in open-economy macroeconomics, Dotsey and Duarte (2011) suggest that the currency denomination of exports does not matter because standard invoicing currency regimes such as producer currency pricing (PCP) and local currency pricing (LCP)...

We show that welfare can be lower under complete financial markets than under autarky in a monetary union with home bias, sticky prices and asymmetric shocks. Such a monetary union is a second-best environment in which the structure of financial markets affects risk-sharing but also shapes the...

We study how constrained fiscal policy can affect regional inflation and output in a two-region model of a monetary union with sticky prices and distortionary taxation. Both government expenditure and taxes can be used to stabilize regional variables; however, the best welfare outcome is...

We establish the share of exports in production as a sufficient statistic for optimal non-cooperative monetary policy. Under financial autarky, markups positively co-move with the export share. For complete markets, markups should be procyclical if the export share is procyclical. When central...

This paper re-examines the ability of sticky-price models to generate volatile and persistent real exchange rates. We use a DSGE framework with pricing to market to illustrate the link between real exchange rate dynamics and what the model assumes about physical capital. We show that adding...

The lumpy nature of plant-level investment is generally not taken into account in the context of monetary theory (see, e.g., Christiano et al. 2005 and Woodford 2005). We formulate a generalized (S,s) pricing and investment model which is empirically more plausible along that dimension....