We develop a two-country New Keynesian model with sticky local currency pricing,distribution costs and a demand elasticity increasing with the relative price. These features help to reduce the exchange rate pass-through to import price at the border and down the chain towards consumption price,...

In this paper a new method of constructing the leading economic index is presented. Its main advantage is the ability to distinguish domestic and foreign factors influencing the growth of economy and it is performed via dynamic hierarchical factor modelling. An application is carried out with...