This paper analyses the international transmission of monetary policy in the case where all export prices are set in US dollars.
“Dollar pricing” implies that the international effects of US monetary shocks are different from those of European shocks
because of an asymmetric exchange rate pass-through to import prices. A dollar pricing model can explain the observed asymmetry
in the transmission of monetary policy: US monetary policy affects US output more than European monetary policy affects European
output. I also show that the current account is an important channel through which monetary policy affects welfare. The paper
concludes that under dollar pricing a monetary expansion is a beggar-thy-neighbour policy.
Keywords Open economy macroeconomics - Monetary policy - International policy transmission
JEL Classification F41 - F42 - F30
Financial support from the Yrjö Jahnsson Foundation is gratefully acknowledged. I am grateful to Vesa Kanniainen, Mika Kortelainen,
Anne Mikkola, Tapio Palokangas, Jouko Vilmunen and seminar participants at the University of Helsinki and HECER for comments.
In addition, I am especially grateful to the referees for their many useful comments.