NDLI: Optimal Exchange-Rate Policy in a Model of Local-Currency Pricing with Vertical Production and Trade

Content Provider	Springer Nature Link
Author	Gong, Liutang Wang, Chan Zou, Heng fu
Copyright Year	2016
Abstract	In this paper, we examine optimal exchange-rate flexibility in a model of local-currency pricing with vertical production and trade. Following a large body of empirical evidence, we assume that final-goods prices are sticky, but intermediate-goods prices are flexible. We find that, unlike what is found in the literature, optimal nominal exchange rate is flexible under local-currency pricing. The key element in deriving our conclusion is the difference in expenditure shares between home and foreign households. The conclusion holds even if the degrees of home bias in production are identical between home and foreign final-goods producers, which contrasts with the findings in the literature.
Starting Page	125
Ending Page	147
Page Count	23
File Format	PDF
ISSN	09237992
Journal	Open Economies Review
Volume Number	28
Issue Number	1
e-ISSN	1573708X
Language	English
Publisher	Springer US
Publisher Date	2016-09-14
Publisher Place	New York
Access Restriction	One Nation One Subscription (ONOS)
Subject Keyword	Optimal monetary policy Local-currency pricing Vertical production and trade Exchange-rate policy International Economics Development Economics European Integration Macroeconomics/Monetary Economics//Financial Economics Economic Policy
Content Type	Text
Resource Type	Article
Subject	Economics and Econometrics

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1	Ministry of Education (GoI), Department of Higher Education	Sanctioning Authority	https://www.education.gov.in/ict-initiatives
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Optimal Exchange-Rate Policy in a Model of Local-Currency Pricing with Vertical Production and Trade