In 2007 all ECB publications feature a motif taken from the €20 banknote. This paper can be downloaded without charge from

In 2008 all ECB publications feature a motif taken from the 10 banknote. This paper can be downloaded without charge from

depreciations; exchange rates; real output growth; recovery from crises. BIS Working Papers are written by members of the Monetary and Economic Department of the Bank for International Settlements, and from time to time by other economists, and are published by the Bank. The papers are on subjects of topical interest and are technical in character. The views expressed in them are those of their authors and not necessarily the views of the BIS. Copies of publications are available from:

Abstract not found

Among the characteristics that distinguish most developing countries, compared to the large industrialized countries, are: greater exposure to supply shocks in general and trade volatility in particular, procyclicality of both domestic fiscal policy and international finance, lower credibility with respect to both price stability and default risk, and other imperfect institutions. Models of dynamic inconsistency in monetary policy and the need for central bank independence and commitment to nominal targets apply even more strongly to developing countries. But because most developing countries are price-takers on world markets, the small open economy model, with nontraded goods, is often more useful than the two-country two-good model. Contractionary effects of devaluation are also far more important for developing countries, particularly the balance sheet effects that arise from currency mismatch. The exchange rate was the favored nominal anchor for monetary policy in inflation stabilizations of the late 1980s and early 1990s. After the currency crises of

Relative cross-border retail prices, in a common currency, comoves closely with the nominal exchange rate. Using a data set with product level retail prices and wholesale costs for a large grocery chain operating in the U.S. and Canada, we decompose this variation into relative wholesale costs and relative markup components. We find that the correlation of the nominal exchange rate with the real exchange rate is mainly driven by changes in relative wholesale costs, arguably the most tradable component of a retailer’s costs. We then measure the extent to which national borders impose additional costs that segment markets across countries. We show that retail prices respond to changes in wholesale costs in neighboring stores within the same country but not to changes in wholesale costs in a neighboring store located across the border. In addition, we find a median discontinuous change in retail and wholesale prices of 24 percent at the international border. By contrast, the median discontinuity is 0 percent for state and provincial boundaries.

Households allocating time between market and non-market uses should respond to income variations by adjusting the time devoted to shopping search and other home production activities. In this paper, we exploit high-frequency household expenditure data to examine the use of changes in shopping intensity as a method of mitigating the effects of the 2002 Argentine economic crisis. Although the total quantity and real value of goods purchased fell during the crisis, consumers are found to be doing more shopping search. This increase in shopping is shown to enable households to seek out lower prices and locate substitutes, allowing a given level of expenditure to buy more goods. The magnitude and prevalence of these effects suggest that this non-market use of labor can be an important coping strategy for households during a recession.

Programme on Monetary Union at the European University Institute. Hospitality by De Nederlandsche Bank while working on this project is gratefully acknowledged. The views expressed here are those of the authors and do not necessarily re ect the positions of the ECB, the Board of Governors of the Federal Reserve System, or any other institutions with which the authors are a liated.

providing us with access to the micro data. We especially thank Bill Alterman, Andrew Cohen, Dave Mead,

re ect the positions of the ECB, the Board of Governors of the Federal Reserve System, or any other institutions with which the authors are a liated.