Passthrough of Exchange Rates and Purchasing Power Parity

Robert Feenstra and Jon D. Kendall

No 4842, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In this paper we develop and test two hypotheses about purchasing power parity (PPP) derived from the pricing behavior of profit- maximizing, exporting firms. The first is that changes in the price of traded goods relative to domestic substitutes, due to partial pass- through of exchange rates, will affect the PPP relation. The second is that PPP should hold on forward rather than spot exchange rates, due to hedging by firms. Using quarterly data for the United States, Canada, France, Germany, Japan and the United Kingdom, we find considerable support for the first but not the second hypothesis.

JEL-codes: F31 (search for similar items in EconPapers)
Date: 1994-08
Note: ITI
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published as Journal of International Economics, Vol. 43, nos. 1/2 (August 1997): 237-261.

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Related works:
Journal Article: Pass-through of exchange rates and purchasing power parity (1997)
Working Paper: Pass-Through of Exchange Rates and Purchasing Power Parity (1994)
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