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Exchange Rate Pass-Through and Market Structure in a Multi-Country World

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  • Kanda Naknoi

    (University of Connecticut)

Abstract

In a multi-country world, currencies do not move in isolation, and competitors’ exchange rate movements may help or hurt an exporting firm. Motivated by this fact, I construct a multi-country model to examine how export prices are affected by movements in own-currency and cross-currency exchange rates. Own-currency appreciations move firms along the demand curve while cross-currency appreciations shift the position of the demand curve. Both affect the price elasticity of demand and therefore the degree to which exchange rate movements affect prices. When own- and cross-currency appreciations are correlated, the exporter changes price in response to both. In the empirical section, I employ monthly data and provide estimates of own and cross exchange rate pass-through to the price of exports from Canada to the U.S. The cross exchange rate pass-through is found to exist in about one-third of sample sectors.

Suggested Citation

  • Kanda Naknoi, 2015. "Exchange Rate Pass-Through and Market Structure in a Multi-Country World," Working papers 2015-10, University of Connecticut, Department of Economics.
    • Handle: RePEc:uct:uconnp:2015-10
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    Cited by:

    1. Auer, Raphael A. & Schoenle, Raphael S., 2016. "Market structure and exchange rate pass-through," Journal of International Economics, Elsevier, vol. 98(C), pages 60-77.
    2. Berger, David & Faust, Jon & Rogers, John H. & Steverson, Kai, 2012. "Border prices and retail prices," Journal of International Economics, Elsevier, vol. 88(1), pages 62-73.

    More about this item

    Keywords

    Exchange rate pass-through; Pricing to market; Exchange rate shocksLength: 35 pages;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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