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Endogenous export prices and the Taiwan-US trade imbalance

Author

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  • Francis Cheung
  • Maw Lin Lee
  • Yi-Chen Wu

Abstract

To explain the perplexing issue of why Taiwan's trade imbalance with the US has persisted despite the depreciation of the dollar, we estimate a four equation model to determine the direct pass-through (DPT) and indirect cost adjustment (ICA) effects of exchange rate changes on Taiwan's export prices. The ICA effect is important in the case of Taiwan because it imports mostly intermediate goods for the production of manufactured goods that are exported. Our findings support the view that DPT and ICA effects reduce the effectiveness of exchange rate as a mechanism for international trade adjustment.

Suggested Citation

  • Francis Cheung & Maw Lin Lee & Yi-Chen Wu, 1997. "Endogenous export prices and the Taiwan-US trade imbalance," Applied Economics, Taylor & Francis Journals, vol. 29(1), pages 23-31.
    • Handle: RePEc:taf:applec:v:29:y:1997:i:1:p:23-31
    DOI: 10.1080/000368497327362
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    References listed on IDEAS

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    1. Ueda, Kazuo, 1983. "Trade Balance Adjustment with Imported Intermediate Goods: The Japanese Case," The Review of Economics and Statistics, MIT Press, vol. 65(4), pages 618-625, November.
    2. Athukorala, Premachandra & Menon, Jayant, 1994. "Pricing to Market Behaviour and Exchange Rate Pass-Through in Japanese Exports," Economic Journal, Royal Economic Society, vol. 104(423), pages 271-281, March.
    3. Kenichi Ohno, 1989. "Export Pricing Behavior of Manufacturing: A U.S.: Japan Comparison," IMF Staff Papers, Palgrave Macmillan, vol. 36(3), pages 550-579, September.
    4. Fisher, Eric, 1989. "A model of exchange rate pass-through," Journal of International Economics, Elsevier, vol. 26(1-2), pages 119-137, February.
    5. Khosla, Anil, 1991. "Exchange rate pass-through and export pricing evidence from the Japanese Economy," Journal of the Japanese and International Economies, Elsevier, vol. 5(1), pages 41-59, March.
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    Cited by:

    1. Chia-Hung Sun & Yi-Bin Chiu, 2010. "Taiwan's trade imbalance and exchange rate revisited," Applied Economics, Taylor & Francis Journals, vol. 42(7), pages 917-922.
    2. Yi‐Bin Chiu & Chia‐Hung Sun, 2009. "Economic interdependence and bilateral trade imbalance across the Taiwan Strait," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 36(4), pages 411-432, September.

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