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The Relationship between the Law of One Price and Exchange Rate Pass-through

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  • Menon, Jayant

    ()
    (Asian Development Bank Institute, Asian Development Bank)

Abstract

The volatility in exchange rates has brought to the forefront the relationship between exchange rate movements and the prices of traded goods. A vast body of literature examining this important issue exists separately under two general headings, namely tests of the “law of one price” and “exchange rate pass-through” analysis. So far, there has not been any attempt to understand the relationship between the two. This is a serious omission, since it leaves a number of important questions unanswered. This paper clarifies these issues by deriving two fundamental propositions on the inter-relationships between exchange rate pass-through and the law of one price. It also draws out the implications of these inter-relationships for the study of exchange rates and prices, and for policy.

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Bibliographic Info

Article provided by Camera di Commercio di Genova in its journal Economia Internazionale / International Economics.

Volume (Year): 48 (1995)
Issue (Month): 4 ()
Pages: 551-568

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Handle: RePEc:ris:ecoint:0389

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Cited by:
  1. Oxana Babetskaia-Kukharchuk, 2007. "Transmission of Exchange Rate Shocks into Domestic Inflation: The Case of the Czech Republic," Working Papers, Czech National Bank, Research Department 2007/12, Czech National Bank, Research Department.
  2. repec:ltr:wpaper:1990.08 is not listed on IDEAS
  3. Schnabl, Gunther & Baur, Dirk, 2002. "Purchasing power parity: Granger causality tests for the yen-dollar exchange rate," Japan and the World Economy, Elsevier, Elsevier, vol. 14(4), pages 425-444, December.
  4. Gunther Schnabl, 2004. "Weak Economy and Strong Currency - The Origins of the Strong Yen in the 1990s," International Finance, EconWPA 0404017, EconWPA.
  5. Athukorala, Premachandra & Menon, Jayant, 1994. "Pricing to Market Behaviour and Exchange Rate Pass-Through in Japanese Exports," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 104(423), pages 271-81, March.
  6. Baoying Lai & Nathan Lael Joseph, 2010. "Pricing-to-market and the volatility of UK export prices," Applied Financial Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 20(18), pages 1441-1460.
  7. Kerstin Stahn, 2011. "Changes in Import Pricing Behaviour: Evidence for Germany," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 231(4), pages 522-545, August.
  8. repec:ltr:wpaper:1994.08 is not listed on IDEAS
  9. Natalya Ketenci & Idil Uz, 2011. "Bilateral and regional trade elasticities of the EU," Empirical Economics, Springer, Springer, vol. 40(3), pages 839-854, May.
  10. Prema-chandra Athukorala & Jayant Manon, 1994. "Exchange Rates and Strategic Pricing: the Case of Swedish Machinery Exports," Working Papers, School of Economics, La Trobe University 1994.08, School of Economics, La Trobe University.
  11. Athukorala, Premachandra, 1991. "Exchange rate pass-through : The case of Korean exports of manufactures," Economics Letters, Elsevier, Elsevier, vol. 35(1), pages 79-84, January.
  12. Andre Luiz Correa, 2011. "Taxa decâmbio e preços no Brasil em um períodode internacionalização produtiva: estimativas decoeficientes de pass-through setoriais," Anais do XXXVII Encontro Nacional de Economia [Proceedings of the 37th Brazilian Economics Meeting], ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of 110, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].

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