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

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  • Byoung-Ky Chang

    (SK Securities)

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.

Suggested Citation

  • Byoung-Ky Chang, 2000. "Empirical Study of Exchange Rate Pass-Through: The Effect of Rival Exchange Rates," Korean Economic Review, Korean Economic Association, vol. 16, pages 321-337.
    • Handle: RePEc:kea:keappr:ker-200012-16-2-08
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    More about this item

    Keywords

    Exchange Rate Pass-Through; Rival Exchange Rate; Strategic Interaction; Imperfect Competition; Market Share;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models

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