Two specifications of an open-economy model are shown to generate high exchange-rate volatility and low exchange-rate pass-through (ERPT). In the model, price discrimination causes ERPT to be incomplete in both the short and the long run. In the short run, a small amount of nominal rigidities is...

Financial integration in the markets for banks' assets and liabilities makes balance sheet constraints highly correlated across countries, resulting in a high degree of financial and macroeconomic interdependence. Likewise, under financial integration unconventional policies aimed at stabilizing...

Over the past 20 years, U.S. import prices have become less responsive to the exchange rate. We propose that a significant portion of this decline is a result of increased trade integration. To illustrate this effect, we develop an open economy DGE model featuring demand curves with variable...