Empirical Study of Exchange Rate Pass-Through: The Effect of Rival Exchange Rates

Byoung-Ky Chang
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Byoung-Ky Chang: SK Securities

Korean Economic Review, 2000, vol. 16, 321-337

Abstract: This article tests the strategic behaviors among exporting firms with simultaneous estimation techniques using 7-digit TSUSA data. Exchange rate pass-through is estimated, and the effect of the rival exchange rate is emphasized. Also, I demonstrate the problem associated with tests which use trade-weighted exchange rate. Pass-through rates are significantly different across source countries and products. While the own exchange rate pass-through tends to be related positively with market share, firms that have small market shares often pass through for the fluctuation of rival exchange rate. Particularly, some exporters who have small market shares may pass through the change of rival exchange rate but not the change of own exchange rate. Most importantly, this research highlights the importance of market structure in exchange rate pass-through studies.

Keywords: Exchange Rate Pass-Through; Rival Exchange Rate; Strategic Interaction; Imperfect Competition; Market Share (search for similar items in EconPapers)
JEL-codes: C31 F14 F31 (search for similar items in EconPapers)
Date: 2000
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