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Market Power, Innovative Activity and Exchange Rate Pass-Through Author info | Abstract | Publisher info | Download info | Related research | Statistics Sophocles N. Brissimis () (Bank of Greece, Economic Research Department and University of Piraeus)
Theodora S. Kosma (Bank of Greece, Economic Research Department)
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This paper considers an international oligopoly where firms simultaneously choose both the amount of output produced and the proportion of R&D investment to output. The model captures the links between the exchange rate, market power, innovative activity and price, which are important for the determination of the optimal degree of exchange rate pass-through. It is found that in the long run the pass-through elasticity can be less than, equal to or greater than one depending on R&D effectiveness but in any case it is higher than in models that do not endogenise innovation decisions. The empirical implications of the model are tested using data for Japanese firms exporting to the US market and applying the Johansen multivariate cointegration technique. Particular attention is given to the estimation and identification of the equilibrium price and R&D-intensity equations. The empirical results indicate that price-setting and R&D-intensity decisions of firms are jointly determined in the long run. This interdependence must be taken into account if an accurate estimate of the exchange rate pass-through is to be obtained.
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Paper provided by Bank of Greece in its series Working Papers with number
22.
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Length: 32 pages
Date of creation: Apr 2005Date of revision:
Handle: RePEc:bog:wpaper:22Contact details of provider: Web page: http://www.bankofgreece.gr More information through EDIRC
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Keywords: Exchange rate pass-through ; market power ; innovative activity ; multivariate cointegration ; Find related papers by JEL classification: C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions F39 - International Economics - - International Finance - - - Other L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - Innovation and Invention: Processes and Incentives
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references Cited by : (explanations , 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.)
Sophocles N. Brissimis & Theodora S. Kosma, 2005.
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