Pass-through of exchange rates and purchasing power parity
AbstractIn this paper we develop and test two hypotheses about purchasing power parity (PPP) derived from the pricing behavior of profit- maximizing, exporting firms. The first is that changes in the price of traded goods relative to domestic substitutes, due to partial pass- through of exchange rates, will affect the PPP relation. The second is that PPP should hold on forward rather than spot exchange rates, due to hedging by firms. Using quarterly data for the United States, Canada, France, Germany, Japan and the United Kingdom, we find considerable support for the first but not the second hypothesis.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of International Economics.
Volume (Year): 43 (1997)
Issue (Month): 1-2 (August)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/505552
Other versions of this item:
- Robert C. Feenstra & Jon D. Kendall, 1994. "Passthrough of Exchange Rates and Purchasing Power Parity," NBER Working Papers 4842, National Bureau of Economic Research, Inc.
- Feenstra, R.C. & Kendall, J.D., 1994. "Pass-Through of Exchange Rates and Purchasing Power Parity," Papers 1994-06, Tasmania - Department of Economics.
- F31 - International Economics - - International Finance - - - Foreign Exchange
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