Disinflation and exchange-rate pass-through
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This paper analyzes exchange-rate dynamics following a money-based disinflation under different degrees of exchange-rate pass-through. Using a microfounded dynamic general equilibrium model with imperfect competition and nominal rigidities, it is shown that a monetary slowdown causes an appreciation of the exchange rate and a short-run fall in employment. Varying the degree of pass-through, however, significantly alters the magnitudes of these effects. As the degree of pass-through is reduced, the extent of the short-run appreciation of the exchange rate increases and the short-run impact of the disinflation on employment falls.
Senay , O 2008 , ' Disinflation and exchange-rate pass-through ' Macroeconomic Dynamics , vol 12 , no. 2 , pp. 234-256 . DOI: 10.1017/S1365100507070022
(c) Cambridge University Press 2008. This is the definitive version of this article as published in Macroeconomics Dynamics, available from http://journals.cambridge.org
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