Asymmetric exchange rate pass-through and monetary policy in open economy
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AbstractWe extend the open economy model of optimal monetary policy to incorpo-rate asymmetric exchange rate pass-through, with a focus on the effect of sticky price on monetary policy transmission and welfare analysis. Under incomplete pass-through in the home country and full pass-through in the foreign country, we find that country-specific productivity shocks have complex effects on optimal monetary policies, which also depend on the elasticity of money demand. In a world Nash equilibrium, foreign monetary policy depends on the degree of home exchange rate pass-through. Asymmetry in exchange rate pass-through leads to asymmetric welfare effects. The welfare level of the home country is higher than that of the foreign country in the Nash equilibrium. However, international cooperation can improve world welfare level.
All Author(s) ListWang S., Guo R.
Journal nameAnnals of Economics and Finance
Volume Number17
Issue Number1
PublisherPeking University Press
Place of PublicationUnited States
Pages33 - 53
LanguagesEnglish-United Kingdom
KeywordsExchange rate pass-through, Local-currency pricing, Optimal monetary policy, Producer- currency pricing

Last updated on 2021-14-10 at 23:38