Strategic Flexibility and Exchange Rate Uncertainty

Corinne Krupp and Carl Davidson ()

Canadian Journal of Economics, 1996, vol. 29, issue 2, 436-56

Abstract: The authors examine the implications of exchange rate swings in interntional markets, paying particular attention to the importance of firm flexibility. They use the term flexibility to refer to the ease with which firms can respond to exchange rate swings. There are two kinds of flexibility that the authors consider: (1) flexibility in the timing of output and sales allocation decisions relative to the exchange rate realization and (2) flexibility in the number of sales outlets available to the firms. They show that differing degrees of flexibility have important implications for equilibrium prices (i.e., exchange rate pass-through), market shares, and profits.

Date: 1996
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