most of trade invoicing is done in dollars. More recent research shows that these dollar prices tend to be sticky—that is, these dollar prices are far more stable than exchange rates. For non-U.S. economies, therefore, a depreciation of their currency relative to the dollar leads to almost a one-to-one increase in the price of imported goods in their own currency and, therefore, the pressures on inflation are high. On the other hand, because dollar prices of traded goods are relatively stable, the inflationary pressures on the U.S. economy are weak.
Pointer from Timothy Taylor.
It is as if there has been a bottom-up decision to stabilize the purchasing power of the dollar. That consensual hallucination makes U.S. monetary policy less effective at wiggling the inflation rate.
Later, she says,
we instead explored the role of value-added taxes and payroll subsidies or, more specifically, raising value-added taxes and cutting payroll taxes. What we found, surprisingly, is that this form of intervention did extremely well in mimicking the outcomes of a currency devaluation, not approximately but exactly.
The point is that a country like Italy or Greece is not trapped by being in the euro. It could increase its competitiveness by raising value-added taxes on consumption and cutting payroll taxes.
I recommend the entire interview. I do not buy everything she says, but it is all interesting.