Exchange Rate Pass-Through When Market Share Matters / Kenneth A. Froot, Paul Klemperer.

By:

Froot, Kenneth A

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w2542.Publication details: Cambridge, Mass. National Bureau of Economic Research 1988.Description: 1 online resource: illustrations (black and white)Subject(s):

F - International Economics

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Abstract: We investigate pricing to market when the exchange rate changes in cases where firms' future demands depend on their current market shares. We show that i) profit maximizing foreign firms may either raise or lower their domestic currency export prices when the domestic exchange rate appreciates temporarily (i.e. the "pass-through" from exchange rate changes to import prices may be perverse); ii) current import prices may be more sensitive to the expected future exchange rate than to the current exchange rate; iii) current import prices fall in response to an increase in uncertainty about the future exchange rate. We present evidence that suggests the behavior of expected future exchange rates may provide a clue to the puzzling behavior of U.S. import prices during the 1980s.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w2542 (Browse shelf(Opens below))	Not For Loan

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March 1988.

We investigate pricing to market when the exchange rate changes in cases where firms' future demands depend on their current market shares. We show that i) profit maximizing foreign firms may either raise or lower their domestic currency export prices when the domestic exchange rate appreciates temporarily (i.e. the "pass-through" from exchange rate changes to import prices may be perverse); ii) current import prices may be more sensitive to the expected future exchange rate than to the current exchange rate; iii) current import prices fall in response to an increase in uncertainty about the future exchange rate. We present evidence that suggests the behavior of expected future exchange rates may provide a clue to the puzzling behavior of U.S. import prices during the 1980s.