Skip to Main content Skip to Navigation
Journal articles

Exchange Rate Pass-Through in a Competitive Model of Pricing-to-Market

Abstract : This paper extends the Mussa and Rosen (1978) model of quality pricing under perfect competition. Exporters sell goods of different qualities to consumers who have heterogeneous preferences for quality. Production is subject to decreasing returns to scale and, therefore, supply and the toughness of competition react to cost changes brought about by exchange rate fluctuations. First, we predict that exchange rate shocks are imperfectly passed through into prices. Second, prices of low-quality goods are more sensitive to exchange rate shocks than prices of high-quality goods. Third, in response to an exchange rate appreciation, the composition of exports shifts toward higher quality and more expensive goods. We test these predictions using highly disaggregated price and quantity U.S. import data and find only weak empirical evidence in support of our theory.
Document type :
Journal articles
Complete list of metadata

https://hal-sciencespo.archives-ouvertes.fr/hal-03389284
Contributor : Spire Sciences Po Institutional Repository Connect in order to contact the contributor
Submitted on : Wednesday, October 20, 2021 - 11:23:17 PM
Last modification on : Monday, March 21, 2022 - 2:50:37 PM
Long-term archiving on: : Friday, January 21, 2022 - 8:48:16 PM

File

2009-chaney-exchange-rate-pass...
Publisher files allowed on an open archive

Identifiers

Collections

Citation

Raphaël Auer, Thomas Chaney. Exchange Rate Pass-Through in a Competitive Model of Pricing-to-Market. Journal of Money, Credit and Banking, Wiley, 2009, Supplement to vol. 41 (1), pp.151 - 175. ⟨hal-03389284⟩

Share

Metrics

Record views

7

Files downloads

11