international marketing policy a discussion of the standardization construct and its relevance for corporate policy a fundamental question in international marketing concerns the desirability and feasibility of standardizing marketing programs and procedures internationally the primary objective of this paper is to present an overview and evaluation of the standardization debate central issues of interest include a discussion of the standardization construct and an evaluation of the evidence regarding corporate implementation of standardization strategies

evidence of nonlinearity in daily stock returns this article applies a newly developed statistical technique to time series of daily rates of return of 15 common stocks the technique involves estimating the bispectrum of the observed time series the bispectrum is defined as the double fourier transform of the third order cumulant function if the process generating rates of return is linear with independent innovations then the skewness of the bispectrum will be constant the article describes a test that can detect nonconstant skewness in the bispectrum hence if the test rejects constant skewness a nonlinear process is implied as a consequence the test can distinguish between white noise and purely random noise the results suggest that daily stock returns are generated by a nonlinear process

monetary policy and uncertainty in an empirical small open economy model this paper explores optimal policy design in an estimated model of three small open economies australia canada and new zealand within a class of generalized taylor rules we show that to stabilize a weighted objective of output consumer price in ation and nominal interest variation optimal policy does not respond to the nominal exchange this is despite the presence of local currency pricing and due in large part to observed exchange rate disconnect in these economies optimal policies that account for the uncertainty of model estimates as captured by the parameters posterior distrbution similarly exhibit a lack of exchange rate response in contrast to brainard 1967 the presence of parameter uncertainty can lead to more or less aggressive policy responses depending on the model at hand

consumer search incomplete exchange rate pass through and optimal interest rate policy this paper studies utility maximizing monetary policy in a two country economy with consumer search frictions search frictions provide a microfoundation for incomplete exchange rate pass through and international deviations from the law of one price lop i show that optimal interest rate policy targets deviations from the lop and acts to mitigate the effect of search frictions in a quantitative setting with internationally correlated technology and preference shocks optimal policy generates positive cross country correlation of nominal interest rates

real exchange rates and relative prices an empirical investigation abstract this paper uncovers a striking empirical regularity the consumer price of a good relative to a different good within a country tends to be much less variable than the price of that good relative to a similar good in another country this fact seems to hold for all goods except very simple homogeneous products models of real exchange rates are likely to have predictions regarding this relation so this fact may provide a useful gauge for discriminating among models

conservative central banks and nominal growth exchange rate and inflation targets a framework is developed in which inflation biases with different target variables are compared a nominal growth target measured in consumer prices may yield less stabilization bias than a nominal income growth target exchange rate and inflation targets result in less stabilization bias than an income growth target the more important the terms of trade stabilization persistence in output causes excessive stabilization of productivity shocks and of shocks to the terms of trade under discretion an inflation weight conservative central bank is more likely under an inflation target than under an exchange rate target and less likely under a nominal income growth target

openness and optimal monetary policy abstract we show that the composition of international trade has important implications for the optimal volatility of the exchange rate above and beyond the size of trade flows using an analytically tractable small open economy model we characterize the impact of the trade composition on the policy trade off and on the role played by the exchange rate in correcting for price misalignments contrary to models where openness can be summarized by the degree of home bias we find that openness can be a poor proxy of the welfare impact of alternative monetary policies using input output data for 25 countries we document substantial differences in the import and non tradable content of final demand components and in the role played by imported inputs in domestic production the estimates are used in a richer small open economy dsge model to quantify the loss from an exchange rate peg relative to the ramsey policy conditional on the composition of imports we find that the main determinant of the losses is the share of non traded goods in final demand

exchange rate pass through exchange rate volatility and exchange rate disconnect abstract this paper explores the hypothesis that high volatility of real and nominal exchange rates may be due to the fact that local currency pricing eliminates the pass through from changes in exchange rates to consumer prices exchange rates may be highly volatile because in a sense they have little effect on macroeconomic variables the paper shows the ingredients necessary to construct such an explanation for exchange rate volatility in addition to the presence of local currency pricing we need a incomplete international financial markets b a structure of international pricing and product distribution such that wealth effects of exchange rate changes are minimized and c stochastic deviations from uncovered interest rate parity together it is shown that these elements can produce exchange rate volatility that is much higher than shocks to economic fundamentals and disconnected from the rest of the economy in the sense that the volatility of all other macroeconomic aggregates are of the same order as that of fundamentals

time varying dynamics of the real exchange rate an empirical analysis summary we use a time varying structural vector autoregression to investigate evolving dynamics of the real exchange rate for the uk euro area and canada we show that demand and nominal shocks have a substantially larger impact on the real exchange rate after the mid 1980s real exchange rate volatility relative to fundamentals also shows a marked increase after this point in time however there is some evidence suggesting a closer business cycle co movement of the real exchange rate and fundamentals simulations from an open economy dsge model show that these results are consistent with a decline in exchange rate pass through copyright 2012 john wiley sons ltd

economic policy and the great depression in a small open economy we use a standard new keynesian model of a small open economy extended to include a government sector to investigate the great depression in australia a calibrated model with a fixed exchange rate regime similar to the gold standard does well in replicating the dynamics of output during the interwar period we then ask to what extent shocks to the economy would have been moderated by adopting modern day policies we find that if policymakers had adopted a flexible exchange rate with a taylor rule policy that output fluctuations during the great depression would have been moderated by up to 25 changes in government fiscal policy would also have moderated output fluctuations but by a slightly smaller amount overall we find that improved policy could have reduced output fluctuations by almost 50

assessing brazilian macroeconomic dynamics using a markov switching dsge model abstract the goal of this paper is to evaluate the behavior of the main parameters of the brazilian economy through the estimation of an open economy dynamic stochastic general equilibrium dsge model using bayesian methods and allowing for markov switching of certain parameters using the dsge model developed by justiniano and preston 2010 and the solution method of the markov switching dsge ms dsge model proposed by farmer et al 2008 this paper found a superior fit in the data of markov switching models rejecting the hypothesis of constant parameters in dsge models for the brazilian economy

forecasting the australian economy with dsge and bvar models reflecting the importance of commodities for the australian economy we construct a dynamic stochastic general equilibrium dsge model of the australian economy with a commodity sector we assess whether its forecasts can be improved by using it as a prior for an empirical bayesian vector autoregression bvar we find that the forecasts from the bvar tend to be more accurate than those from the dsge model nevertheless for output growth these forecasts do not outperform benchmark models such as a small open economy bvar estimated using the standard priors for forecasting a bayesian factor augmented vector autoregression produces the most accurate near term inflation forecasts

monetary policy and exchange rate volatility in a small open economy we lay out a small open economy version of the calvo sticky price model and show how the equilibrium dynamics can be reduced to a simple representation in domestic inflation and the output gap we use the resulting framework to analyse the macroeconomic implications of three alternative rulebased policy regimes for the small open economy domestic inflation and cpi based taylor rules and an exchange rate peg we show that a key difference among these regimes lies in the relative amount of exchange rate volatility that they entail we also discuss a special case for which domestic inflation targeting constitutes the optimal policy and where a simple second order approximation to the utility of the representative consumer can be derived and used to evaluate the welfare losses associated with the suboptimal rules

the statistical properties of daily foreign exchange rates 1974 1983 abstract this paper examines the statistical properties of daily rates of change of five foreign currencies from 1974 to 1983 the main purpose is to discriminate between two competing explanations for the observed heavy tails of the distribution that the data are independently drawn from a heavy tail distribution which remains fixed over time and that the data come from distributions which vary over time evidence point to the rejection of the first hypothesis further investigations show that the rejection can be attributed to changing means and variances in the data which can be described by a simple statistical model

monetary policy choices in emerging market economies the case of high productivity growth we develop a general equilibrium model of an emerging market economy where productivity growth differentials between tradable and non tradable sectors result in an equilibrium appreciation of the real exchange rate the so called balassa samuelson effect the paper explores the dynamic properties of this economy and the welfare implications of alternative policy rules we show that the real exchange rate appreciation limits the range of policy rules that with a given probability keep inflation and exchange rate within predetermined numerical targets we also find that the b s effect raises by an order of magnitude the welfare loss associated with policy rules that prescribe active exchange rate management

price stability in open economies this paper studies the conditions under which price stability is the optimal policy in a two country open economy model with imperfect competition and price stickiness special conditions on the levels of country specific distortionary taxation and the intratemporal and intertemporal elasticities of substitution need to be satisfied these restrictions apply to both cooperative and non cooperative settings most importantly we show that cooperative and non cooperative solutions do not coincide despite market completeness and producer currency pricing in this framework our analysis suggests a role for international policy coordination

a welfare based analysis of international monetary policy spillovers at the zero lower bound we study the welfare effects of international monetary policy spillovers at the zero lower bound focusing on the effects of forward guidance in a large economy foreign on its smaller trading partner home in scenarios motivated by the global financial crisis we find that foreign forward guidance has an overall prosper thy neighbor effect on the home economy as long as it increases foreign welfare this finding holds under alternative assumptions about exchange rate pass through or the degree of international financial integration however foreign forward guidance may worsen the trade off between the stabilization objectives of home monetary policy

a model of advertising standardization in multinational corporations although there have been several studies concerning the issue of advertising standardization few authors have proposed an integrated model of the determinants of advertising standardization even if the extent of control of multinational corporations mnc over their subsidiaries is often cited as a key element in the determination of the level of advertising standardization adopted by the mncs there is no consistent view concerning the role of this variable this paper attempts to clarify these points by proposing at the mnc level a measurement model and a structural model for the determinants of the degree of advertising standardization in this model the mediation effect of the mnc s degree of control over the subsidiary is tested and validated in addition the measurement instruments used for the determinants are confirmed

optimal monetary policy in open versus closed economies an integrated approach in clarida et al 1999 hereafter cgg we presented a normative analysis of monetary policy within a simple optimization based closedeconomy framework we derived the optimal policy rule and among other things characterized the gains from commitment also we made precise the implications for the kind of instrument feedback rule that a central bank should follow in practice in this paper we show how our analysis extends to the case of a small open economy openness complicates the problem of monetary management to the extent the central bank must take into account the impact of the exchange rate on real activity and inflation how to factor the exchange rate into the overall design of monetary policy accordingly becomes a central consideration here we show that under certain conditions the monetary policy design problem for the small open economy is isomorphic to the problem of the closed economy that we considered earlier hence all our qualitative results for the closed economy carry over to this case openness does affect the parameters of the model suggesting quantitative implications though the general form of the optimal interest rate feedback rule remains the same as in the closedeconomy case for example how aggressively a central bank should adjust the interest rate in response to inflationary pressures depends on the degree of openness in addition openness gives rise to an important distinction between domestic inflation and consumer price inflation as defined by the cpi to the extent that there is perfect exchange rate pass through we find that the central bank should target domestic inflation and allow the exchange rate to float despite the impact of the resulting exchangerate variability on the cpi kosuki aoki 1999 gali and tommaso monacelli 2000

product and promotion adaptation in export ventures an empirical investigation while the desirability of marketing adaptation vs standardization has long been debated within both academic and business circles empirical studies investigating the conditions under which each strategy becomes appropriate have been rare this article provides a formal investigation of the correlates of product and promotion adaptation in export ventures a conceptual framework of product and promotion adaptation in export ventures is proposed to integrate the diverse perspectives on the issue of standardization versus adaptation the conceptual framework is further specified in a testable form and tested via data collected by a series of in depth personal interviews with export marketing managers the results support the contingency perspective recently emerging in the standardization literature and suggest that the degree of the various aspects of product adaptation i e upon and after entry and promotion adaptation i e positioning packaging labeling and promotional approach are significantly influenced by company product industry and export market characteristics however the profile of the correlates varies across the various aspects of product and promotion adaptation

learning under fear of floating in recent years a large fraction of economies overcame the fear of floating we study a model that describes the policy of a central bank uncertain about whether currency depreciations cause output to expand textbook model or contract balance sheet model we conclude that the movement away from fear of floating may not be explained by bayesian or robust policies when the private sector anticipates the central bank s policy and endogenously determines the model central banks may fall in a learning trap an increase in financial volatility provides an escape to such trap that replicates patterns in the data

international monetary policy coordination and competitive depreciation a reevaluation is there a need for international coordination of monetary policies within the current system of floating exchange rates in a recent paper obstfeld and rogoff 1995 argue that in an environment of sticky prices under floating exchange rates monetary policy shocks will generate positive welfare spillovers across countries this leads to the conclusion that international monetary policy coordination is unnecessary and may in fact be undesirable since it nurtures a bias towards high inflation our paper shows that these conclusions are dependent on the manner in which prices are set when firms engage in pricing to market ptm setting prices in the currency of the buyer monetary policy tends to have negative welfare spillovers this gives an incentive to engage in competitive depreciation in a noncooperative equilibrium world inflation will be higher the greater the importance of ptm with a high degree of ptm it follows that the case for international monetary policy coordination is restored if ptm is at an intermediate range however international monetary coordination may have no consequences at all

comparative marketing the first twenty five years this article reviews the field of comparative marketing in terms of scope types and depth of studies methodological issues conceptual and managerial payoffs and teaching approaches after its first quarter of a century as an international business topic comparative marketing is still relatively green

new directions for stochastic open economy models the paper develops a simple stochastic new open economy macroeconomic model based on sticky nominal wages explicit solution of the wage setting problem under uncertainty allows one to analyze the effects of the monetary regime on welfare expected output and the expected terms of trade despite the potential interplay between imperfections due to sticky wages and monopoly the optimal monetary policy rule has a closed form solution to motivate our model we show that observed correlations between terms of trade and exchange rates are more consistent with our traditional assumptions about nominal rigidities than with a popular alternative based on local currency pricing 2000 elsevier science b v all rights reserved

optimal monetary policy in open economies revisited abstract this paper revisits optimal monetary policy in open economies in particular focusing on the noncooperative policy game under local currency pricing in a two country dynamic stochastic general equilibrium model we first derive the quadratic loss functions which noncooperative policy makers aim to minimize then we show that noncooperative policy makers face extra trade offs regarding stabilizing real marginal costs induced by deviations from the law of one price under local currency pricing and that optimal monetary policy seeks to stabilize cpi inflation rates and more so under noncooperation than it does under cooperation as a result of the increased number of stabilizing objectives welfare gains from cooperation emerge even when two countries face only technology shocks still gains from cooperation are not large implying that frictions other than nominal rigidities are necessary to strongly recommend cooperation as an important policy framework to increase global welfare

monetary policy determinacy and learnability in a two block world economy we study how determinacy and learnability of worldwide rational expectations equilibrium may be affected by monetary policy in a simple two country new keynesian framework under both fixed and flexible exchange rates we find that open economy considerations may alter conditions for determinacy and learnability relative to closed economy analyses and that new concerns can arise in the analysis of classic topics such as the desirability of exchange rate targeting and monetary policy cooperation

on unemployment cycles in the euro area 1999 2018 abstract this paper studies the recurrent sources of unit root unemployment fluctuations in greece italy portugal spain and the euro area by integrating wage markup and labor disutility shocks that exhibit permanent euro area wide shifts country specific trend developments and stationary changes in an estimated dsge model in all economies these labor market shocks account for a negligible share of unemployment cycles demand shocks explain about 40 of them contribute to the pre crisis convergence of unemployment rates and shape the unemployment spikes during the great recession cross country relative price distortions and supply factors account for about 40 and 20 of those cycles respectively

fiscal responses after catastrophes and the enabling role of financial development natural disasters may constitute a major shock to public finances and debt sustainability because of their impact on output and the need for government response with reconstruction and relief expenses the question arises of whether governments can use financial development policy as the means to mitigate or insure against this negative fiscal impact this paper uses a panel vector autoregressive model estimated on annual data for high and middle income countries over 1975 2008 to study the role of debt market development and insurance penetration in enabling fiscal response after catastrophes the authors find that countries with higher debt market development suffer smaller real consequences from disasters but that their deficits expand further followingthe mitigating fiscal response disasters in countries with high insurance penetration also experience smaller real consequences of disasters but without the need for further deficit expansions from an ex post perspective the availability of insurance could offer the best mitigation approach against the real and fiscal consequences of disasters

the timeless perspective vs discretion theory and monetary policy implications for an open economy abstract compared to the standard phillips curve an open economy version that features a real exchange rate channel leads to a markedly different target rule in a new keynesian optimizing framework under optimal policy from a timeless perspective tp the target rule involves additional history dependence in the form of lagged inflation the target rule also depends on more parameters notably the discount factor as well as two is and two phillips curve parameters stabilization policy in this open economy model is no longer isomorphic to policy in a closed economy because of the additional history dependence in an open economy target rule price level targeting is no longer consistent with optimal policy the gains from commitment are smaller in economies where the real exchange rate channel exerts a direct effect on inflation in the phillips curve

understanding the gains from wage flexibility the exchange rate connection we study the gains from increased wage exibility and their dependence on exchange rate policy using a small open economy model with staggered price and wage setting two results stand out i the impact of wage adjustments on employment is smaller the more the central bank seeks to stabilize the exchange rate and ii an increase in wage exibility often reduces welfare and more likely so in economies under an exchange rate peg or an exchange rate focused monetary policy our ndings call into question the common view that wage exibility is particularly desirable in a currency union

a general theory of controllability and expectations anchoring for small open economies abstract rational expectations are often used as an argument against policy activism as they may undermine or neutralize the policymaker s actions although this sometimes happens rational expectations do not always imply policy invariance or ineffectiveness in fact in certain circumstances rational expectations can enhance our power to control an economy over time in those cases policy announcements can be used to extend the impact of conventional policy instruments we present a general forward looking policy framework and use it to provide a formal rationale for testing when policymakers can and cannot expect to be able to manage expectations to describe the relevance of our results applications are shown for policy design in small open economies those are the cases where domestic policies are at their weakest and our ability to influence expectations most constrained

a conditional variance model for daily deviations of an exchange rate a model for the distribution of daily deviations of an exchange rate is suggested the distribution is gaussian with a variance that depends on previous deviations the model is applied to the exchange rate of the u s dollar to special drawing rights

overvalued swedish monetary policy in the 1930s the article discusses sweden s monetary policy in the 1930s which has been hailed as the first and only example of successful price level targeting our contribution is twofold first we argue that the crucial measure that immediately ended deflationary expectations and enabled a swift recovery was a strong and involuntary devaluation of the currency not the adoption of a new monetary policy framework second starting from the recent literature on monetary policy at the zero lower bound we conclude that sweden s exchange rate policy is more relevant for the current discussion than its tentative experience with price level targeting

exchange rate economics is always and everywhere controversial abstractthis article reviews the major developments in the recent literature on exchange rate economics it is argued that the link between the exchange rate and economic fundamentals is breaking new ground evidence indicates that alternative analytical frameworks such as the new open economy macroeconomics and exchange rate arrangements such as the euro have their theoretical and analytical elegance but are proving empirically very difficult to implement the role of methodological advances and alternative fundamental instruments such as world commodity prices is also highlighted

sourcing strategies of european and japanese multinationals a comparison based on a typology of sourcing strategies this study identifies various sourcing patterns adopted by european and japanese multinational manufacturing firms in serving the u s market the study has found that the product s market performance is not at all related to its life cycle stage in world trade or to production location but is positively related to the internal components sourcing and negatively related to the product adaptation the findings strongly support levitt s call for a global product

oil price shocks and their transmission mechanism in an oil exporting economy a var analysis informed by a dsge model abstract this paper examines the macroeconomic effects of oil price shocks and the oil shock transmission mechanism in an oil exporting country canada we use a structural var with sign restrictions that comes from a two country dynamic stochastic general equilibrium dsge model to jointly identify oil price domestic supply and u s and domestic monetary policy shocks this identification strategy not only controls for reverse causality from the canadian and u s macroeconomic conditions to the real oil prices but more importantly it also allows for contemporaneous interactions between the canadian and u s variables we find that oil shocks have a stimulative effect on canadian aggregate demand appreciate the canadian dollar improve the terms of trade and reduce real wages foreign disturbances including innovations in oil prices and the u s interest rate have a significant influence on canadian economic activities our counterfactual analysis indicates that the reaction of the u s interest rate as an indirect transmission channel for oil price shocks plays a moderate role in explaining the real exchange rate and inflation but has negligible impacts on the canadian output and interest rate

haircuts or hysteresis sources of movements in real exchange rates abstract we empirically assess the importance of two sources of real exchange rate movements in models where ppp holds only among traded goods real exchange rate variation results from relative price movements within countries an alternative explanation relies on hysteretic price setting and nominal exchange rate changes using disaggregated price data from 11 oecd nations we find some support for the non traded goods models for example prices of haircuts in canada and the united states are unrelated in the long run we find stronger evidence to support models that emphasize sticky prices transportation costs or other impediments to frictionless trade

the cultural relativity of organizational practices and theories this paper summarizes the author s recently published findings about differences in people s work related values among 50 countries in view of these differences ethnocen tric management theories those based on the value system of one particular country have become untenable this concept is illustrated for the fields of leadership organization and motivation a key issue for organization science is the influence of national cultures on introduction management twenty or even 10 years ago the existence of a relationship be management and tween management and national cultures was far from obvious to many and it national cultures may not be obvious to everyone even now in the 1950s and 60s the dominant be lief at least in europe and the u s was that management was something univer sal there were principles of sound management which existed regardless of na tional environments if national or local practice deviated from these principles it was time to change local practice in the future the universality of sound manage ment practices would lead to societies becoming more and more alike this ap plied even to the poor countries of the third world which would become rich as well and would be managed just like the rich countries also the differences be tween management in the first and second world capitalist and socialist would disappear in fact under the surface they were thought to be a lot smaller than was officially recognized this way of thinking which dominated the 1950s and 60s is known as the convergence hypothesis during the 1970s the belief in the unavoidable convergence of management prac tices waned it was too obviously in conflict with the reality we saw around us at the same time supranational organizations like the european common market which were founded very much on the convergence belief had to recognize the stubbornness of national differences even within existing nations regional dif ferences became more rather than less accentuated the welsh the flemish the basques the bangladeshi the quebecois defended their own identity and this was difficult to reconcile with a management philosophy of convergence it slowly became clear that national and even regional cultures do matter for management the national and regional differences are not disappearing they are here to stay in fact these differences may become one of the most crucial problems for man agement in particular for the management of multinational multicultural orga nizations whether public or private

the impact of oil price shocks in the canadian economy a structural investigation on an oil exporting economy abstract oil price shocks and monetary policy response by oil producing economies have been the subject of important theoretical investigation in the modern literature this topic seems to be well grounded since fluctuations in the us dollar which is affected by us monetary policy plays an important role in exacerbating run ups and precipitous falls in world oil prices we investigate the economic consequences of oil price shocks using an open economy dsge model that incorporates demand for and supply of oil while allowing for interaction between domestic and foreign monetary policy using canadian and u s data we quantify the relative importance of oil price shocks and monetary policy response on macroeconomic variables we show that domestic monetary policy is a key channel that accounts for over 40 of discounted variation in domestic output across a 4 year horizon after an oil shock in contrast us monetary policy is of lesser importance in propagating oil price shocks on an oil exporting economy through the international channel

taylor rules in the open economy abstract taylor rules which link short term interest rates to fluctuations in inflation and output have been shown to be a good guide both positively and normatively to the conduct of monetary policy as a result they have been used extensively to model policy in the context of both closed and open economy models their determinacy properties have also been analysed in the context of closed and to a more limited degree in small open economy models in this paper we extend the analysis of the determinacy properties of taylor rules to the case of a benchmark two country model when the rules are specified in terms of output price inflation we confirm and extend the conventional results from the closed economy literature satisfying the taylor principle is the key to ensuring determinacy although the presence of backward looking price setting can affect the determinacy properties of the two country model however the conventional results do not hold when we replace output price inflation with consumer price inflation in the specification of the rule in this case taylor rules which satisfy the taylor principle will be indeterminate unless there is an unusually large home bias in consumption similar indeterminacy problems arise when one country targets cpi inflation and the other output price inflation in this case we show that even if determinacy is achieved large spillovers may occur between countries

uncovering the hit list for small inflation targeters a bayesian structural analysis we estimate underlying structural macroeconomic policy objectives of three of the earliest explicit inflation targeters within the context of a small open economy dynamic stochastic general equilibrium model we assume central banks set policy optimally such that we can reverse engineer policy objectives from observed time series data joint tests of the posterior distributions of these policy preference parameters suggest that the central banks are very similar in their overall objective none of the central banks show a concern for stabilizing the real exchange rate all three central banks share a concern for minimizing the volatility in the change in the nominal interest rate we also show that the resulting optimal policy rule responds to exchange rate movements even in the case where the central banks do not explicitly care about exchange rate stabilization this result is also corroborated by results from an alternative simple rule characterization and estimation of central bank behavior these last two findings point to the pitfalls of making inferences from the level of ad hoc simple rules about what central banks may care about

goods prices and exchange rates what have we learned import prices typically change by a smaller proportion than the exchange rate between the exporting and importing country recent research indicates that common currency relative prices for similar goods exported to different markets are highly correlated with exchange rates between those markets this evidence suggests that incomplete pass through is a consequence of third degree price discrimination while distance matters for market segmentation borders have independent effects the source of the border effect has not been clearly identified furthermore there is little evidence yet to suggest substantial market power is implied by the observed price discrimination

a happy half way house medium term inflation targeting in new zealand abstract the 2002 policy targets agreement pta between the government and central bank of new zealand asks the central bank to target inflation over the medium term rather than over an annual target delegating such a medium term objective to the central bank shifts inflation targeting towards a halfway house between inflation targeting and price level targeting we show empirically that this helps time consistent policy approximate the first best commitment policy even when the government asks the central bank to weight output stabilisation differently to society we estimate the new zealand economy with a small open economy dsge model and show that the happiest halfway house is located around a two year averaging horizon at most which leads to mild improvements in monetary policy efficiency

price adjustment and exchange rate pass through abstract this paper develops a simple theoretical model that can be used to account for the determinants of exchange rate pass through to consumer prices while recent evidence has found low estimates of pass through in many countries there is little consensus on an explanation for this our paper argues that sticky prices represent a key determinant of exchange rate pass through we make this argument in two stages first holding the frequency of price change constant we show that our model calibrated to data from low inflation countries can reproduce the estimates of very low pass through for these countries the principal determinant of low pass through in this case is the slow adjustment of prices we then extend the model to allow the frequency of price change to be endogenous calibrating to a wider set of countries including both low inflation and high inflation countries we show that our model implies that exchange rate pass through is increasing in average inflation but at a declining rate performing the identical exercise on the data we find a striking correspondence between the predictions of the model and those of the data

the new open economy macroeconomics a survey since the 1995 publication of obsteld and rogoff s redux model there has been an outpouring of research on open economy dynamic general equilibrium models that incorporate imperfect competition and nominal rigidities this paper offers an interim survey of this recent literature 2001 elsevier science b v all rights reserved

incomplete pass through and the welfare effects of exchange rate variability abstract this paper considers the implications of incomplete exchange rate pass through for optimal monetary and exchange rate policy a two country model is presented which allows an explicit derivation of welfare functions in terms of a weighted sum of the second moments of producer prices and the nominal exchange rate from a single country perspective the optimal exchange rate variance depends on the degree of pass through the size and openness of the economy the elasticity of labour supply and the volatility of foreign producer prices welfare may be decreasing or increasing in the volatility of the exchange rate

evolving macroeconomic dynamics in a small open economy an estimated markov switching dsge model for the uk this paper investigates the possibility of shifts in the uk economy using a markov switching open economy dynamic stochastic general equilibrium dsge model we find overwhelming evidence to reject the hypothesis that the deep structural parameters of the underlying structural model had stayed constant throughout the sample period and there is significant changes to the volatility of the structural shocks counterfactual experiments based on the model with the best empirical fit indicate that the change in the policy rule as well as changes to the volatility of the structural shocks over the sample period are crucial features in explaining uk s macroeconomic performance

international dimensions of optimal monetary policy abstract this paper provides a baseline general equilibrium model of optimal monetary policy among interdependent economies with monopolistic firms and nominal rigidities an inward looking policy of domestic price stabilization is not optimal when firms markups are exposed to currency fluctuations such a policy raises exchange rate volatility leading foreign exporters to charge higher prices vis a vis increased uncertainty in the export market as higher import prices reduce the purchasing power of domestic consumers optimal monetary rules trade off a larger domestic output gap against lower consumer prices optimal rules in a world nash equilibrium lead to less exchange rate volatility relative to both inward looking rules and discretionary policies even when the latter do not suffer from any inflationary or deflationary bias gains from international monetary cooperation are related in a non monotonic way to the degree of exchange rate pass through

targeting inflation by forecast feedback rules in small open economies abstract we argue that in practice the inflation targeting strategy can be approximated by the interest rate responding to the unchanged interest rate forecast of inflation a method is developed to derive unchanged interest rate forecasts in forward looking models and evaluate the performance of the policy rule in an optimizing new keynesian model due to monacelli european central bank working paper series 227 estimated on uk data we find that the policy rule is less prone to generate a determinate rational expectations equilibrium if based on an unchanged interest rate compared to the rule consistent forecast both rules approximate the optimal commitment policy if the central bank attaches sufficient weight to inflation as opposed to output gap stabilization the optimal forecast feedback horizon is close to a year and a half and is largely independent of how much the central bank prefers inflation to output gap stability

has exchange rate pass through really declined evidence from canada several empirical studies suggest that exchange rate pass through has declined in recent years among industrialized countries results for canada also indicate that import and consumer prices have become less responsive to exchange rate movements in the 1990s these findings are based on reduced form regressions that are typically motivated by partial equilibrium models of pricing this paper uses instead a structural general equilibrium approach to test the premise that exchange rate pass through has decreased in canada our approach consists in estimating a dynamic stochastic generalequilibrium model for canada over two sub samples which cover the periods before and after the adoption of inflation targeting by the bank of canada we then use impulseresponse analysis to assess the stability of exchange rate pass through across the two sub samples our results indicate that pass through to canadian import prices has been rather stable while pass through to canadian consumer prices has declined in recent years counterfactual experiments reveal that the change in monetary policy regime is largely responsible for this decline

monetary policy in a low pass through environment in a dynamic new keynesian optimizing model we introduce incomplete exchange rate pass through on import prices three results stand out first unlike canonical models with perfect pass through which emphasize a type of isomorphism incomplete pass through renders the analysis of monetary policy of an open economy fundamentally different from the one of a closed economy second productivity driven deviations from the law of one price assume the interpretation of endogenous cost push shocks third the optimal commitment policy relative to discretion entails a smoothing of the deviations from the law of one price and requires more stable nominal and real exchange rates

accounting for u s real exchange rate changes this study measures the proportion of u s real exchange rate movements that can be accounted for by movements in the relative prices of nontraded goods the decomposition is done at all possible h

identification of new keynesian phillips curves from a global perspective this paper is concerned with the estimation of new keynesian phillips curves nkpc and focuses on two issues the weak instrument problem and the characterization of the steady states it proposes some solutions from a global perspective using a global vector autoregressive gvar model steady states are estimated as long horizon expectations and valid instruments are constructed from the global variables as weighted averages the proposed estimation strategy is illustrated using estimates of the nkpc for eight developed industrial countries the gvar generates global factors that are valid instruments and help alleviate the weak instrument problem the steady states also reflect global influences and any long run theoretical relationships that might prevail within and across countries in the global economy the gvar measure of the steady state performed better than the hp measure and the use of foreign instruments substantially increased the precision of the estimates of the output coefficient