Local currency pricing, foreign monetary shocks and exchange rate policy

Ozge Senay; Alan Sutherland

doi:10.1007/s11079-015-9356-x

Local currency pricing, foreign monetary shocks and exchange rate policy

Research output: Contribution to journal › Article › peer-review

Abstract

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.

Original language	English
Pages (from-to)	633-661
Journal	Open Economies Review
Volume	26
Issue number	4
Early online date	17 May 2015
DOIs	https://doi.org/10.1007/s11079-015-9356-x
Publication status	Published - 1 Sept 2015

Keywords

Monetary policy
Foreign monetary shocks
Expenditure switching
Exchange rates
Local currency pricing
Reference currency

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10.1007/s11079-015-9356-x

senay-sutherland-paper-final
© Springer Science+Business Media New York 2015. This is the author's accepted version of this work. The final publication is available at Springer via http://dx.doi.org/10.1007/s11079-015-9356-x
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The Macroeconomics of Financial: The Macroeconomics of Financial Globalisation
Sutherland, A. (PI)
Economic & Social Research Council
1/07/11 → 31/12/15
Project: Standard

Ozge Senay
- os12st-andrews.acuk
- Economics (Business School) - Reader
Person: Academic

Cite this

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abstract = "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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Local currency pricing, foreign monetary shocks and exchange rate policy

Abstract

Keywords

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The Macroeconomics of Financial: The Macroeconomics of Financial Globalisation

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Ozge Senay

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