Exchange Rate Pass-Through and the Welfare Effects of the Euro / Michael B. Devereux, Charles Engel, Cedric Tille.

Format:

Book

Author/Creator:

Devereux, Michael B.

Contributor:

National Bureau of Economic Research.

Engel, Charles.

Tille, Cedric.

Series:

Working Paper Series (National Bureau of Economic Research) no. w7382.

NBER working paper series no. w7382

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1999.

Summary:

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.

Notes:

Print version record

October 1999.