Who bears the cost of a change in the exchange rate? The case of imported beer

Rebecca Hellerstein

No 179, Staff Reports from Federal Reserve Bank of New York

Abstract: This paper quantifies the welfare effects of a change in the nominal exchange rate using the example of the beer market. I estimate a structural econometric model that makes it possible to compute manufacturers' and retailers' pass-through of a nominal exchange-rate change, without observing wholesale prices or firms' marginal costs. I conduct counterfactual experiments to quantify how the change affects domestic and foreign firms' profits and domestic consumer welfare. The counterfactual experiments show that foreign manufacturers bear more of the cost of an exchange-rate change than do domestic consumers, domestic manufacturers, or a domestic retailer. The model can be applied to other markets and can serve as a tool to assess the welfare effects of various exchange-rate policies.

Keywords: beer; pricing-to-market; local-currency pricing; cross-border vertical contracts; law of one price; exchange-rate pass-through; market segmentation (search for similar items in EconPapers)
JEL-codes: D40 F14 F3 F4 L16 L60 (search for similar items in EconPapers)
Pages: 65 pages
Date: 2004-02-01
New Economics Papers: this item is included in nep-ifn
Note: For a published version of this report, Rebecca Hellerstein, "Who Bears the Cost of a Change in the Exchange Rate? Pass-through Accounting for the Case of Beer," Journal of International Economics 76, no. 1 (September 2008): 14-32.
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Citations: View citations in EconPapers (20)

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