The exchange rate pass-through is the central issue of internationalfinance, and policy makers often argue aboutit.A large number of theoretical researchesshow that degrees of exchange rate pass-through play a significant role in the followingissues: the international balance of payments adjustments (Obstfeld, 2001;Engel,2002), monetary policy actions(such as Corsetti and Pesenti 2005;Sutherland,2005),the real exchange rate volatility, the choice of exchange rate regime (Engel 2002);Devereux and Engel,2003), and the transmission of international impact(Betts andDevereux,2000).There also exist lots of related empirical studies(Goldberg andKnetter,1997;Campa and Goldberg,2005),which mainly measure the flexibility andstability of exchange rate pass-through.
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