The international transmission of monetary policy in a dollar pricing model

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Title: The international transmission of monetary policy in a dollar pricing model
ISBN: 978-952-462-406-0
Author: Tervala, Juha
Organization: Suomen Pankki
Series: Bank of Finland Research Discussion Papers
ISSN: 1456-6184
Series year: 2007
Series number: 29/2007
Year of publication: 2007
Publication date: 5.10.2007
Pages: 33 s.
Keywords: mallit; valuutat; USA; Eurooppa; hinnoittelu; ulkomaankauppa; valuuttakurssit; rahapolitiikka; tuonti; häiriöt; kansainvälinen; vienti; hinnat; leviäminen; USD
JEL: F41; F42; F30
Abstract: This paper analyses the international transmission of monetary policy in a case where all export prices are set in US dollars. 'Dollar pricing' implies that the international effects of US monetary shocks are different to those of European shocks because of asymmetric exchange rate pass-through to import prices. A dollar pricing model can explain the observed asymmetry in the transmission of monetary policy: US monetary policy affects US output more than European monetary policy affects European output. I also show that the dollar pricing model reintroduces the current account as an important channel through which monetary policy affects welfare in the short run. The paper concludes that under dollar pricing monetary expansion is a beggar-thy-neighbour policy. Keywords: open economy macroeconomics, monetary policy, international policy transmission JEL classification numbers: F41, F42, F30

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