The international transmission of monetary policy in a dollar pricing model

    Research output: Working paperDiscussion paperScientific

    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.
    Original languageEnglish
    Place of PublicationHelsinki
    PublisherBank of Finland
    Number of pages33
    ISBN (Print)978-952-462-406-0
    ISBN (Electronic)978-952-462-407-7
    Publication statusPublished - 2007
    MoE publication typeD4 Published development or research report or study

    Fields of Science

    • 511 Economics
    • avoin talousjärjestelmä
    • makrotaloustiede
    • rahapolitiikka

    Cite this

    Tervala, J. (2007). The international transmission of monetary policy in a dollar pricing model. (Bank of Finland Research Discussion Papers; No. 29/2007). Helsinki: Bank of Finland.