The Exchange Rate Adjustment Role in Imperfect Competition: the Case of the Czech Republic
AbstractOne of the approaches to an international trade analysis is the assumption of prevailing imperfect competition where monopolistic firms determine prices of their production on segmented foreign markets. Based on aggregate data of quarterly financial indicators of non-financial enterprises, the hypothesis was tested whether producers based in the Czech Republic absorb nominal exchange rate fluctuations in their profit margins. Estimated results indicate that domestic private firms absorb a substantial part of exchange rate fluctuations whereas the impact on firms under foreign control is ambiguous which implies application of optimization strategies in the case of multinational companies. These strategies are associated with pricing of intrafirm transactions. Tax optimization of multinational companies causes the dependence of the profitability of firms under foreign control on the level of effective taxation in EU countries. Both local-currency-pricing strategy (domestic private firms) and optimization strategies of multinational companies (firms under foreign control) lead to weakening of the exchange rate adjustment mechanism. In the case of small open economies, arguments in favor of a flexible exchange rate regime are therefore weakening with increasing globalization and imperfect competition in international trade.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by University of Finance and Administration in its journal ACTA VSFS.
Volume (Year): 2 (2008)
Issue (Month): 1 ()
exchange rate; foreign market; imperfect competition; multinational company; pricingto- market; profit margin;
Find related papers by JEL classification:
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Boris Hofmann, 2001. "The determinants of private sector credit in industrialised countries: do property prices matter?," BIS Working Papers 108, Bank for International Settlements.
- Michael B. Gordy, 2002.
"A risk-factor model foundation for ratings-based bank capital rules,"
Finance and Economics Discussion Series
2002-55, Board of Governors of the Federal Reserve System (U.S.).
- Gordy, Michael B., 2003. "A risk-factor model foundation for ratings-based bank capital rules," Journal of Financial Intermediation, Elsevier, vol. 12(3), pages 199-232, July.
- John G. Cragg & Russell S. Uhler, 1970. "The Demand for Automobiles," Canadian Journal of Economics, Canadian Economics Association, vol. 3(3), pages 386-406, August.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Helena Hakenova).
If references are entirely missing, you can add them using this form.