The responsiveness of consumer prices to exchange rates and the implications for exchange-rate policy
Subtitle: a survey of a few recent new open-economy macro models
By: Charles Engel.
Contributors: National Bureau of Economic Research.
Series: NBER working paper series ;; working paper  8725; Working paper series (National Bureau of Economic Research : Online) ;; working paper no.  8725.
Publisher: National Bureau of Economic Research
Published: 2002
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Subjects: Foreign exchange rates.; Prices.
Description: "The traditional case for flexibility in nominal exchange rates assumes that there is nominal price stickiness that prevents relative prices from adjusting in response to real shocks.  When prices are sticky in producers' currencies, nominal exchange rate changes can achieve the relative price change that is required between home and foreign goods.  The nominal exchange rate flexibility provides the desired 'expenditure-switching' effect of relative price changes.  But if prices are fixed ex ante in consumers' currencies, nominal exchange rate flexibility cannot achieve any relative price adjustment.  In fact, nominal exchange rate fluctuations are undesirable because they lead to deviations from the law of one price.  So, fixed exchange rates are optimal.  The empirical literature appears to support the notion that prices are sticky in consumers' currencies.  This paper surveys the approaches taken in the new open economy macroeconomic literature to formalize the role of optimal monetary policy.  The survey explores how this literature has dealt with the empirical evidence on pass-through of exchange rate changes to consumer prices"--National Bureau of Economic Research web site.
Notes: Also available in print.
Includes bibliographical references.
Title from PDF file as viewed on 3/4/2005.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.