The Response of Trade Prices to Exchange Rate Changes

Manuchehr Irandoust ()

Open Economies Review, 1999, vol. 10, issue 4, 355-363

Abstract: The present paper examines export and import pricing behavior following exchange rate changes in small, open economies. Using a monopolistic model, this study reveals that export and import prices should change but not in proportion to exchange rate movements. The policy implication of the results is that the “pricing to market” phenomenon could be a critical factor in explaining the evolution of the external trade balance with strategic interaction present in the case of prices on tradable goods. Consequently, the use of an exchange rate policy in the case of external imbalances should be a central issue within the broader context of how market structure and conduct affect the optimal traded goods prices. Copyright Kluwer Academic Publishers 1999

Keywords: trade prices; markup adjustment; exchange rate changes; pricing to market; exchange rate pass-through (search for similar items in EconPapers)
Date: 1999
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DOI: 10.1023/A:1008372529231

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