TY  - JOUR
AU  - Devereux,Michael B.
AU  - Engel,Charles
AU  - Storgaard,Peter E.
TI  - Endogenous Exchange Rate Pass-through when Nominal Prices are Set in Advance
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9543
PY  - 2003
Y2  - March 2003
UR  - http://www.nber.org/papers/w9543
L1  - http://www.nber.org/papers/w9543.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

Peter Storgaard
E-Mail: pso@nationalbanken.dk
AB  - This paper develops a model of endogenous exchange rate pass through within an open economy macroeconomic framework, where both pass-through and the exchange rate are simultaneously determined, and interact with one another. Pass-through is endogenous because firms choose the currency in which they set their export prices. There is a unique equilibrium rate of pass-through under the condition that exchange rate volatility rises as the degree of pass-through falls. We show that the relationship between exchange rate volatility and economic structure may be substantially affected by the presence of endogenous pass-through. Our key results show that pass-through is related to the relative stability of monetary policy. Countries with relatively low volatility of money growth will have relatively low rates of exchange rate pass-through, while countries with relatively high volatility of money growth will have relatively high pass-through rates.
ER  -