Exchange Rate Volatility, Pricing to Market and Trade Smoothing

Author/Editor:

Hamid Faruqee ; Peter B. Clark

Publication Date:

October 1, 1997

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper investigates the consequences of exchange rate volatility on the variability of export prices and quantities in the presence of market segmentation and pricing to market. Firms stabilize destination prices through systematic price discrimination, limiting the degree of exchange rate pass-through. Consequently, the variability of exchange rates is not fully translated into prices and quantities at the point of destination. Empirical estimates using aggregate price data for the G-7 industrial countries show incomplete pass-through in variances, with considerable variation among these countries. U.S. industry specific data also indicate incomplete pass-through in most cases, with considerable variation across industries.

Series:

Working Paper No. 1997/126

Subject:

Currencies Exchange rate adjustments Exchange rates Export prices Import prices

English

Publication Date:

October 1, 1997

ISBN/ISSN:

9781451936629/1018-5941

Stock No:

WPIEA1261997

Pages:

39

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