Economics, Econometrics and Finance
4 years ago

Monopolies drive up prices: Exchange rates impact import costs significantly.

International Finance Discussion Paper
A Model of Exchange Rate Pass-Through
Eric O'n. Fisher

Paper Summary

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Exchange rate pass-through is when changes in foreign exchange values affect import prices. The model in this paper shows that firms adjust prices based on expected exchange rate changes. The degree of pass-through depends on market structures and exchange rate regimes. Pass-through is higher with monopolistic home markets or competitive foreign markets. Analysis of Japanese manufacturing prices confirms that pass-through is linked to industry concentration during yen depreciation against the dollar.