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Foreign exchange volatility and international pricing

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  • Tantatape Brahmasrene
  • Jui-Chi Huang
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    Abstract

    This paper explores the hypothesis that the unresponsiveness of export pricing to exchange rate fluctuations may be partially the result of hedging activities by trading agents due to foreign exchange volatility (EV) to eliminate exchange risk. In essence, hedging against foreign exchange uncertainty affects the structure of pass-through relationship. The exchange rate pass-through issue is governed by a firm-specific factor like hedging, in addition to market share, product differentiation and market structure. A reduction in exchange risk exposure leads to a decline in the willingness rather than the ability to pass the cost shock to consumers. The estimation of foreign EV dummy interacting with one-year-lagged exchange rate on export pricing supports the hypothesis that there is a significant differential impact of high- and low-EV destinations on the degree of pass-through which, in turn, affects international pricing.

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    Bibliographic Info

    Article provided by Inderscience Enterprises Ltd in its journal Int. J. of Economics and Business Research.

    Volume (Year): 3 (2011)
    Issue (Month): 4 ()
    Pages: 357-370

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    Handle: RePEc:ids:ijecbr:v:3:y:2011:i:4:p:357-370

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    Web page: http://www.inderscience.com/browse/index.php?journalID==310

    Related research

    Keywords: foreign exchanges; hedging; pass-through; international pricing; export prices; unresponsiveness; exchange rate fluctuations; exchange rates; trading agents; exchange risk; uncertainty; firm-specific factors; market share; product differentiation; market structure; risk exposure; cost shock; consumers; one-year exchange rates; dummy interacting; lagged exchange rates; differential impacts; high-exchange volatility; low-exchange volatility; economics; business research.;

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