Exchange Rate Pass-Through and Market Structure in a Multi-Country World

Kanda Naknoi

No 2015-10, Working papers from University of Connecticut, Department of Economics

Abstract: In a multi-country world, currencies do not move in isolation, and competitors’ exchange rate movements may help or hurt an exporting firm. Motivated by this fact, I construct a multi-country model to examine how export prices are affected by movements in own-currency and cross-currency exchange rates. Own-currency appreciations move firms along the demand curve while cross-currency appreciations shift the position of the demand curve. Both affect the price elasticity of demand and therefore the degree to which exchange rate movements affect prices. When own- and cross-currency appreciations are correlated, the exporter changes price in response to both. In the empirical section, I employ monthly data and provide estimates of own and cross exchange rate pass-through to the price of exports from Canada to the U.S. The cross exchange rate pass-through is found to exist in about one-third of sample sectors.

Keywords: Exchange rate pass-through; Pricing to market; Exchange rate shocksLength: 35 pages (search for similar items in EconPapers)
JEL-codes: F31 F41 (search for similar items in EconPapers)
Date: 2015-04
New Economics Papers: this item is included in nep-mon and nep-opm
References: Add references at CitEc
Citations: View citations in EconPapers (1)

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