Local Currency Pricing, Foreign Monetary Shocks and Exchange Rate Policy

被引:0
作者
Ozge Senay
Alan Sutherland
机构
[1] University of St Andrews,School of Economics and Finance
来源
Open Economies Review | 2015年 / 26卷
关键词
Monetary policy; Foreign monetary shocks; Expenditure switching; Exchange rates; Local currency pricing; Reference currency; E52; F41; F42;
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学科分类号
摘要
The implications of local currency pricing (LCP) for monetary regime choice are analysed for a country facing foreign monetary shocks. In this analysis expenditure switching is potentially welfare reducing. This contrasts with the existing LCP literature, which focuses on productivity shocks and thus analyses a world where expenditure switching is welfare enhancing. This paper shows that, when home and foreign producers follow LCP, expenditure switching is absent and a floating rate is preferred by the home country. But when only home producers follow LCP, expenditure switching is present and a fixed rate can be welfare enhancing for the home country.
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页码:633 / 661
页数:28
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