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Effects of the Exchange-Rate Regime on Trade under Monetary Uncertainty: The Role of Price Setting

Mihailov, Alexander (2003) Effects of the Exchange-Rate Regime on Trade under Monetary Uncertainty: The Role of Price Setting. Working Paper. University of Essex, Department of Economics, Economics Discussion Papers, Colchester.

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Abstract

In a baseline stochastic new open-economy macroeconomics (NOEM)model which parallels alternative invoicing conventions, namely consumer’s currency pricing (CCP) vs. producer’s currency pricing (PCP), we revisit the question whether the exchange-rate regime matters for trade. We show analytically that under full symmetry, only money shocks and separable but otherwise very general utility, it is irrelevant in affecting expected trade-to-output ratios. A peg-float comparison is nevertheless meaningful under PCP, although not CCP, in terms of volatility of national trade shares: by shutting down the pass-through and expenditure-switching channel, a peg then stabilizes equilibrium trade-to-GDP at its expected level.

Item Type: Monograph (Working Paper)
Uncontrolled Keywords: alternative price setting, international trade, exchangerate regimes, stochastic NOEM models.
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences > Economics, Department of
Depositing User: Jenny Connolly
Date Deposited: 28 Aug 2014 14:18
Last Modified: 28 Aug 2014 14:18
URI: http://repository.essex.ac.uk/id/eprint/8865

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