Adjustment to Variations in Imported Input Prices: The Role of Economic Structure
This paper introduces an imported input into a model of art open
economy with developed financial markets, a flexible exchange rate, and some degree of market power on the export side.
The model is designed to investigate the impact of an increase
in imported input prices on the exchange rate, domestic interest
rate, income and nontraded—goods prices. The analysis reveals that changes in various structural parameters, such as the degree of market power or the extent of “demand—side openness” or “financial openness,” alter the transmission of foreign price disturbances fo the domestic economy.
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