The Responsiveness of Consumer Prices to Exchange Rates: A Synthesis of some New Open-Economy Macro Models
General equilibrium optimizing models with sticky nominal prices allow us to revisit questions about optimal monetary policy in open economies. If nominal prices are set in producers' currencies, appropriate monetary policy can reproduce the allocations under flexible prices. If nominal prices are set in consumers' currencies, stable nominal exchange rates may be desirable. In this case, a nominal exchange rate fixed at the PPP level can have desirable consequences for risk sharing, and nominal exchange rate flexibility cannot deliver optimal relative price changes. However, evidence shows that pass-through may be greater to import prices than to consumer prices. If prices are fixed for consumers, but importer-distributors face pass-through, then monetary policy makers face a trade-off that might require some control of nominal exchange rates, but not purely fixed rates. Copyright 2002 by Blackwell Publishers Ltd and The Victoria University of Manchester
Dennis M. Ray is a visiting scholar at both the Institute of South-east Asian Studies, Singapore, and the Institute of International Relations, Sophia University, Tokyo, Japan. This research note reports on a pilot study conducted in Singapore to test whether two scales correlated with either the level of exports or the manner in which export sales were pursued by venture business in Singapore. The study suggests that a cross-cultural experience scale along and in combination with the craftsman-opportunist typology modified to fit various culture settings may be a powerful tool for predicting export activity.