TY  - JOUR
AU  - Devereux,Michael B.
AU  - Engel,Charles
AU  - Tille,Cedric
TI  - Exchange Rate Pass-Through and the Welfare Effects of the Euro
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7382
PY  - 1999
Y2  - October 1999
UR  - http://www.nber.org/papers/w7382
L1  - http://www.nber.org/papers/w7382.pdf
N1  - Author contact info:
Michael B. Devereux
Department of Economics
University of British Columbia
997-1873 East Mall
Vancouver, BC V6T 1Z1
CANADA
Tel: 604/822-2542
Fax: 604/822-5915
E-Mail: mbdevereux@gmail.com

Charles Engel
Department of Economics
University of Wisconsin
1180 Observatory Drive
Madison, WI  53706-1393
Tel: 608/262-3697
Fax: 608/262-2033
E-Mail: cengel@ssc.wisc.edu

Cédric Tille
Graduate Institute for International
and Development Studies
Department of Economics
Pavillon Rigot, Avenue de la Paix 11 A
1202 Geneve, Switzerland
Tel: 41229085928
Fax: 41227333049
E-Mail: cedric.tille@graduateinstitute.ch
AB  - This paper explores the implications of the European single currency within a simple sticky price intertemporal model.  The main issue we focus on is how the euro may alter the responsiveness of consumer prices to exchange rate changes.  Our central conjectures is that the acceptance of the euro will lead European prices to become more insulated from exchange-rate volatility, much the way U.S. consumer prices already are.  We show that this has profound consequences for both the volatility and levels of macroeconomic aggregates in both the U.S. and Europe.  We find that European welfare is enhanced, and, more surprisingly U.S. shares in Europe's good fortune.  Alternative assumptions about how pricing behavior will change lead to different conclusions, but in all cases we can derive specific implications for expected levels and volatility of macroeconomic varialbes.
ER  -